There have been a number of people that have asked me about connecting Project Server to VSTS. Here is a pointer to a CodePlex project that will do just that:
"The Visual Studio Team System Project Server 2007 Connector is designed to integrate the project management capabilities of VSTS with Project Server 2007. It's been developed by the Visual Studio Team System Rangers in response to significant customer demand for a connector solution. Future versions of Team System will have native integration with Project Server, in the meantime this Connector solution is the best way to integrate the two Microsoft products. This solution builds on the previous PS2003 VSTS Connector, published on GotDotNet. This solution is intended to provide guidance, provided as source code that can be used "as is," extended, or modified by developers to use on enterprise development projects."