We are using VS2012 and TFS2012 and write unit tests for our code. We want to report code coverage, and also using .config files in our unit tests for test appsettings, and also
a) App.config not working in new test framework
This should still work. What I think is missing in this case is that this .config file is not being copied with your test dll. Could you please set this as a deployment item and try again?
b) Do not use the .testSettings file
If you dont have anything except code coverage settings in the .testsettings file then you can easily migrate to the 2012 test runner and select "enable code coverage" in the drop down items