We have a small 3 developer team that is currently using Subversion for our source control. We expect the team to group to 8 members within the next 6 to 12 months. We are considering changing our source control to either TFS or Mercurial for improved branching. I know TFS is overkill for just branching, but that is the immediate need, and the other features of TFS could aid our team. One of our main concerns with TFS is we've heard that there is a lot of overhead deploying it, especially on a small team. I'm hoping to get some community insight into just how much overhead there may be involved, suggestions to make the process easier, and anything else the community may feel is useful in making the decision to implement.
It's been awhile, but I'm thinking that it takes about a half-day to get setup, plus some time reading the manuals beforehand to make sure you know what you're doing. Configuration doesn't take too long -- you need to add all of your developers in as licensed users. Setting up projects is not too hard. I usually set up AD groups to map on the project roles and add those groups to the appropriate roles. I set up a new project in about 1/2 hour.
Note: I don't use any of the features of TFS except source control. If you plan to item tracking, use the project sharepoint site, etc., your mileage will vary quite a bit. I've found that on our projects (2-3 developers) a wiki works just as well for project management.
In my experience, TFS works really well, even for small teams. If your total number of developers is five or less, you can use the relatively affordable Workgroup edition: above that, you'll have to pony up for the real thing, pricing for which is definitely in the 'Enterprise' realm...
The biggest hurdle to starting to use TFS is installing the darn thing: this process seems to be designed for maximum aggravation. (The extent to which the 'designers' of the 2005-to-2008 upgrade 'process' despise their users even manages to go beyond that: fortunately, you'll be able to start with TFS2008 and won't have to worry about upgrading for a while).
If you follow the instructions exactly, you should manage in 2-3 tries, though, and the hardware requirements aren't as bad as they seem. My 3-developer TFS setup runs quite comfortable on a previous-generation Dell laptop with 4GB of RAM.
One of the big advantages of TFS is the VS integration: this works just really, really well, and shelving and branching are implemented in a more straightforward way than with any other systems I've seen.
The process guidance and support in TFS are a bit less polished, but still quite usable. The pluggable support for several development methodologies is quite nice, and several third-party add-ons (for example for Scrum) are available already.
All in all, it definitely won't hurt to try TFS: if you have a MSDN subscription, you probably already have the Workgroup edition as well as a trial of the full version: otherwise, you can downloaded the latter from Microsoft as well.
UPDATE, April 12th, 2010: With the release of Team Foundation Server 2010, the installation and upgrade procedures have improved a lot. A new TFS2010 install shouldn't take you more than a few minutes (assuming you already have an instance of SQL Server 2008 up and running) and even an in-place upgrade of my TFS2008 setup proved to be entirely painless.
Setup of TFS is not too complicated, when you exactly follow the given guide step by step. We are using it on a small team for about one year now and i don't want to miss it any more.
Especially when you use more than one part of tfs like version control and work item tracking and maybe even teambuild, your team will benefit of the tight integration of the seperate parts.
For example, you can link to workitems when checking in code changes. Then you run an automated build with teambuild and it will automatically update your workitems with the build number. So afterwards you can see for example in a bug workitem the buildnumber which contains the bugfix.
We also use the sharepoint wiki for documentation and planning although i'm not the biggest sharepoint fan...
The main point is the great integration into the IDE and for workitem tracking the Teamsystem Web Access which allows you to control at least your workitems over a webinterface.