I found this useful snippet of information on the Microsoft Website regarding TFS builds for Web Application Projects.
The May 2006 release of Web Application Projects supports building with Team Build on a Team Foundation Server (TFS). However, you will need to manually add the "Microsoft.WebApplication.targets" file to your Team Foundation Server for it to work.
- On the computer running Team Build, navigate to the "C:\Program Files\MSBuild\Microsoft\VisualStudio\v8.0" directory.
- In this directory create a "WebApplications" directory.
- Place the "Microsoft.WebApplication.targets" file in the "WebApplications" directory. This file can be found at the same location on your developer system that has been updated with the May 2006 release of Web Application Projects.
After performing these steps Team Build should be able to successfully build a web-project build with the new Web Application Project type.