Recently I ran into an error installing TFS2008 SP1. The environment is an upgraded TFS2005 install, had been running OK and updates went fine. This update just did not install.

Error 29106.Team Foundation Report Server Configuration: Access to the SQL Reporting Services databases could not be granted. Verify that the Team Foundation data-tier server has enough free disk space.

In the end the solution appeared in the log file, located in C:\WINDOWS\system32\config\systemprofile\Local Settings\Temp. The file stated

System.Data.SqlClient.SqlException: User, group, or role 'Domain\TFS_AT$' already exists in the current database.

The solution appeared to be to remove the computer account from logins and all databases in SQL Server on the Team Foundation Server Data Tier. After that SP1 created the account again and installed fine.