When using remote SQL, and you have no SQL components installed – you will get an error “Setup cannot connect to the SQL Server SERVERNAME”
If you install only the SQL Client Connectivity Tools (like TFS requires), then you get the following error: “To use an SQL Server 2008 instance and database, the SQL Server 2008 Management Tools – Basic or Command Line Utilities must be installed on the Virtual Machine Manager server. (ID: 10214)”
Although none of the documentation tells you this :)