I currently have a TFS 2010 Server running on SERVER-1. On my client (MY-CLIENT) I have VS2010 running and have a workspace associating SERVER-1 with \\MY-CLIENT\\Development.
The working folder mappings for all the local workspaces is stored in the version control cache file. This allows you to bootstrap TFS clients, allowing them to locate the server information for a given local folder. In addition, it will provide the information for this test you're seeing, that prevents a local folder from being mapped to two different servers.
In order to clean this up (without trying to connect to the server), you can use the tf workspaces
command (note the pluralization - the workspaces
command operates on the list of workspaces, the workspace
command operates on a workspace and generally requires connectivity to the server that workspace is located on.
To delete all workspaces for your deleted project collection, you can do:
tf workspaces /remove:* /collection:http://server-2:8080/tfs/DefaultCollection
(Obviously replacing the project collection URI with the URI for your deleted server.)