This topic comes up quite often, so I thought I would write a blog entry. For the most part this is basically a rehash of my posting to a forum thread a year ago. See: http://forums.microsoft.com/MSDN/ShowPost.aspx?PostID=275481&SiteID=1.
Technically, TFS integrates with Visual InterDev by using the TFS MSSCCI provider. In reality this is less than useful. InterDev only uses the MSSCCI interface to source control some local artifacts. Your website is being placed under source control by the IIS server to which it is published. As part of using FrontPage Server Extensions (FPSE) to publish your website to IIS, InterDev also uses FPSE to forward source control operations intended for the website to the IIS server. Here is where the problem occurs. The FPSE engine within IIS DOES NOT USE MSSCCI for source control! Instead, FPSE in IIS uses a direct OLE connection to the Visual SourceSafe installation that is local to the IIS server (see: http://www.codeproject.com/asp/VSS_and_VID.asp for more information). Therefore, the fact that InterDev is configured to use the TFS MSSCCI plugin has no effect on how the website is actually put under source control since this happens at the IIS server. Furthermore, it is not possible to configure the IIS server to utilize Team Foundation Version Control. There currently are no plans of which I am aware that call for adding TFS integration to FPSE within IIS. At present, if you use InterDev and FPSE for your website then you must use Visual SourceSafe as the repository.