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I have posted about Hosted Team Foundation server before and I have had a few discussions with Jon Pratt from the Microsoft UK Development Tools Team on the subject. The issue with Hosted TFS is that there is no real partitioning of projects within the system and thus if you had two clients on the same server they would be able to view each others data.
I even asked a question on LinkedIn and got an amazing response.
You may think that this is an oversight, but TFS was not really designed for the hosted environment. The problem is that in my company we would need to keep different areas of the business separate. This requires separate instances of Team Foundation Server for this to work.
There are changes coming in Orcas that will help with this and ones in Rosario that should solve the problems and allow proper hosting.
At this time there is only one commercial hosted team server called TFS Now that has been blogged about by Jeff Beehler and Brian Harry last month.
Check out TFS Now …
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We partner with businesses across diverse industries, including finance, insurance, healthcare, pharmaceuticals, technology, engineering, transportation, hospitality, entertainment, legal, government, and military sectors.