Trying to connect to TFS 2010 using VS 2008 Team Explorer where TFS is on a different domain than the current logged in Domain.
Make sure the Server URL is the full URL along with the Team Project Collection Name. If you don't provide the Project Collection Name in the URL then you will get the above error.
http://[server name]:[port name]/tfs/[project collection name]
Also make sure to include the domain beside the user name when you are asked for credentials as the TFS server is on a different domain.
User name: domain name\username