CodePlex offers free TFS hosting with a feature set aimed at hosting open-source projects. Its version control offerings are complete, but Team Foundation Server is a platform with many feature areas, so let's look at those:
Version Control: CodePlex supports the entire feature set of TFS Version Control. In fact, CodePlex pioneered some version control tools for TFS like their SVNBridge.
Work Item Tracking: Team Foundation Server allows for a customizable work item tracking template and ships several out-of-the box to suit development processes ranging from CMMI to Agile. CodePlex, however, provides a single work item tracking template that is suitable for open source projects and does not allow customization.
Continuous Integration: CodePlex does not support automated builds at this time. You can set up your own continuous integration builds against a CodePlex endpoint for source code, though.
Document Repository: There is no SharePoint document repository available in CodePlex.
Reports: SQL Reporting Services are not available in CodePlex.
I would argue that for a small open-source project, none of these are deal-breakers. For a very large project, however, some or all of these features may be desirable, though.
If you want to use TFS and you are looking for a cost-effective solution for a small project, you may also want to look into Team Foundation Service, which is currently free while it is in its preview state. (Future pricing has not yet been announced.)