If all you need is source control, TFS is overkill. One of my previous employers had TFS, VSS, and Subversion in their enterprise. We didn't have Active Directory or Exchange Server 2003 in our enterprise, so we ended up creating separate users on the TFS server so developers could use it. We had the same sorts of problems with merging that Ben Schierman mentioned, along with other buggy behavior that pushed us toward Subversion.
Whether TFS is the right call for you will depend in part on your budget, the size of your development team, and the amount of time and personnel available for configuration/maintenance of your solution. If you want the additional issue tracking, work item, and project statistics capabilities that TFS provides, it may be worth your while to look at other alternatives. Products like JIRA (from Atlassian Systems) or Trac integrate well with Subversion and provide the sort of oversight a project or program manager might at a lower price.
In an ideal environment, with Active Directory, Exchange Server 2003 or higher, and dedicated staff for the repository, TFS is more likely to be a good choice.