EDIT: The information below the line applied to TFS2010 Beta 1 (and earlier).
As of Beta 2 (and continued with RC and RTM) you can install TFS on:
SQL Server Express
SQL Server Standard
SQL Server Enterprise
TFS includes options to install with Express (e.g. run on your own client system), and a licence for Standard (only when installing as a single, data & application tier together, server).
This has actually changed with the Beta 2 version of TFS 2010. One of the configuration options, "Basic", allows the use of SQL Server Express (and will even install it for you, I believe). The page that Richard linked to actually contains the Beta 2 version of the installation guide as well, which documents this feature.
EDIT: The information below the line applied to TFS2010 Beta 1 (and earlier).
As of Beta 2 (and continued with RC and RTM) you can install TFS on:
TFS includes options to install with Express (e.g. run on your own client system), and a licence for Standard (only when installing as a single, data & application tier together, server).
Quick answer: No.
Longer answer: Take a look at the "Team Foundation Installation Guide for Visual Studio Team System 2010" which says, under "Installing Prerequisites" [sic] | SQL Server:
Additional: I haven't checked this, but for test/evaluation/development (of TFS/VS addins) the Development Edition may also work.
This has actually changed with the Beta 2 version of TFS 2010. One of the configuration options, "Basic", allows the use of SQL Server Express (and will even install it for you, I believe). The page that Richard linked to actually contains the Beta 2 version of the installation guide as well, which documents this feature.
The marked answer is not correct. TFS 2010 Basic install will run on SQL Server Express (free). And if you have SQL Server (standard or better) included with your MSDN subscription you get a licence to use that in production for TFS only. Please see this blog post: http://blogs.msdn.com/buckh/archive/2009/10/20/tfs-2010-server-licensing-it-s-included-in-msdn-subscriptions.aspx