You updated to TFS 2008, but since the upgrade process doesn't touch your already installed WSS you are responsible for upgrading it yourself.
Official Guidance:
Step 1: Run Prescan.EXE
Resulting log file:

Resulting XML file:
Step 2: Install WSS 3.0

Step 3a: Upgrade (invoked automatically by setup)



(Be aware: if you do not use the same port as your TFS is configured to talk to today you need to change the TFS registration using TFSAdminUtil afterwards!)



Step 3b: Still Upgrade (not in the web browser)
Step 4: Finalization (manual step)

Step 5: Uninstall WSS 2.0 (manual step)



Step 6: Install & configure TFS Extensions for WSS (located on the TFS media)



Step 7: Verify success by creating a new team project
