1) No, you don't need it.
Unless you really want all the TFS features, you'll be installing masses of stuff for no real gain. Having said that, if you want to use source control, profiling, code analysis and those sort of handy things, it would be one way to achieve this - though you'd probably still be better off with a couple of specific third party tools than the whole TFS install if you only want a few of these tools.
2) No, you don't need to install all the bits to make it work.
Unless something has changed a lot with 2010, the basic VSTS install is more or less the same as the Pro version of VS - and then you install the Team Explorer on top to gain the TFS specific client-side extensions.
In fact, you can go much further by doing a custom install and turning off a lot of stuff that you don't want (VS includes a load of stuff for targetting platforms you will probably never see with languages you may not have even heard of :-). That said, unless disk space is a major concern, it's easier and safer to just go for a standard install, because that is always going to be the best tested configuration - once you start removing bits there is a tendency for odd little things to stop working properly.