I love DVCS and used Mercurial for a year exclusively, but one thing that TFS does really really well is lifecycle and issue management. The way you can put a project plan (essentially) into it as a collection of work items and then track burndown/earned-value as code checkins are occurring is really awesome. My stand-by joke is that TFS would be an awesome lifecycle management tool if only it had a good version control product. When you work in a large enterprise (read: bureaucratic) where you have to satisfy a small army of project managers who are watching the dollars tick by, TFS has many pros worth considering.

I don't know TFS, but isn't it possible to just use the ALM tools for project management and keep using mercurial, git, svn or whatever else you prefer as VCS? Is the link between the two really required?

It's not required, but when you check code into TFS, you can associate it to a backlog task in the UI. You'd miss that.

Correct. I used Mercurial with Redmine and you could tag your checkins with special text "closes #39" for example. It's quite a bit more cumbersome than having a filtered query alongside your checkin dialog that you can just tick a checkbox. Especially when your development team has a, let's say, mix of skill levels.

Most project management tools support this feature these days (JIRA, FogBugz). Association between commits and ticket/bugs/features/etc.

I believe some of them even gone further by providing a RELEASE.txt type of output if you follow their preferred way of handling releases/versioning/milestone.

Indeed. In the meantime, check out Git-Tfs (http://git-tfs.com)

I feel your pain.