Use Beyond compare as your diff / merge tool in TFS 2010

Follow these instructions to configure. (is definitely worth it!)

Diff

1. In Visual Studio Choose Options from the Tools menu.
2. Expand Source Control in the treeview.
3. Click Visual Studio Team Foundation Server in the treeview.
4. Click the Configure User Tools button.
5. Click the Add button.
6. Enter ".*" in the Extension edit.
7. Choose Compare in the Operation combobox.
8. Enter the path to BComp.exe in the Command edit.
9. In the Arguments edit, use:
   %1 %2 /title1=%6 /title2=%7

2-way Merge (v3 Pro)

1. Follow steps 1-6 above.
2. Choose Merge in the Operation combobox.
3. Enter the path to BComp.exe in the Command edit.
4. In the Arguments edit, use:
   %1 %2 /savetarget=%4 /title1=%6 /title2=%7