[Configuration Database] TF255374: The following SQL Server instance is not compatible with Team Foundation Server: VBXW2008\SQLSVR08. The default collation is set to Latin1_General_CI_AI. Team Foundation Server requires that the default collation be case insensitive and accent sensitive. You must choose a SQL Server instance whose default collation settings match these requirements
The best option i found out was either i re-install the SQL SERVER 2008 again fresh or create a new instance with collation settings defined properly at the time of installation .
Team Foundation Server 2010