Some say that you should uninstall TFS 2005 first, but I found just installing TFS 2008 over top of the existing installation worked fine.

We didn’t have to upgrade to Sharepoint 3.0 so all we needed to do was to install the Sharepoint Extensions. 

Tip #1: TFS Build – use Network Services account.
Tip #2: To upgrade from Workgroup Edition to the Standard Edition, you may find that when you click Add/Remove and click Change/Remove, the option to upgrade is grayed out. I found that if I edit the Setup.sdb located under —
FilesMicrosoft Visual Studio 2008 Team Foundation ServerMicrosoft Visual
Studio 2008 Team Foundation Server – ENU"

to include the
correct [Product Key] value, then run setup.exe from the same location, the
upgrade worked!