I recently did an upgrade on a this scenario by a customer for whatever reason I had not faced before. It was a dual-server TFS 2005 installation and the server had Visual Studio 2005 and Team Explorer 2005 installed as well as WSS 2.0. If you are trying to upgrade a server like this one, here are some recommendations:
Please be careful and read the installation guide form Microsoft:
Uninstall Team Explorer.
Well, that's what I did but it may not be necessary, read on for details... the installation guide states that if you are installing 2008 SP1 on a server that also has Team Explorer installed, you should install Visual Studio 2008 SP1 before installing TFS 2008 SP1. Well, installing VS2008 SP1 will break your WSS 2.0, it is a known problem to Microsoft. Because I decided to leave the WSS upgrade to 3.0 until after TFS was fully upgraded to 2008 SP1 I ended up having this problem, so I decided to just uninstall all versions of Team Explorer to avoid any potential risks that would delay the upgrade,.
Upgrade TFS2005 to TFS2008 RTM.
Per the installation guide.
Upgrade your WSS 2.0 to 3.0 before applying the TFS 2008 SP1.
I cannot say I had a bad experience for applying the TFS SP1 first. After the experience I explained above, I just decided it could also break WSS 2.0 so I upgraded WSS right after the TFS upgrade. The only thing to note here is that you are going to end up with one WSS site and two WSS Central Administration sites after the upgrade. You will need to provide an alternative port for the WSS 3.0 Central Administration site (other than 17012 as that one is taken by the WSS 2.0 CA, I used 17013) and the upgrade guide does not tell you how to remove the old one afterwards.
Then apply TFS 2008 SP1.