Scott Guthrie has a really detailed post about how his team uses our internal tools to manage the bug tracking process. I really recommend you take a look if you want to find out more of the background behind Team System’s work item tracking components.
Scott has screen grabs of the “Product Studio” tool that we use internally. This is the codebase that we started with, but there is a lot of work to take even a very mature internal tool and get it to a point where it is both ready to ship also useful in situations beyond the peculiarities of the way we work at Microsoft. Integration with Visual Studio and developing a rich Object Model to enable 3rd parties to extend Team System is a lot of work.