TF31002: Unable to connect to this Team Foundation Server

First let me tell that I am new to TFS. I got tasked with installing and configuring TFS2008 for our development team. Everything was going smooth till the point when I tried to connect to TFS server from Team Explorer and get the following error thrown at me.

Microsoft Visual Studio
TF31002: Unable to connect to this Team Foundation Server: mytfsserver.
Team Foundation Server Url: http://mytfsserver:8080.

Possible reasons for failure include:

- The Team Foundation Server name, port number or protocol is incorrect.
- The Team Foundation Server is offline.
- Password is expired or incorrect.

For further information, contact the Team Foundation Server administrator.

When I looked at the error, it looked more like some kind of network error. But then I tried to access some other web services on the same error and nothing looked wrong. Well that was not very helpful. So far I was trying with Internet Explorer and I know that Team Explorer pretty much uses IE control behind the scene to connect to any kind of web services. So I fired up Fire Fox. It prompted me for my windows credentials. And now I got different kind of error but told me to look at the event logs. When I opened event log there were lot of errors from TFS and the last one looked like below:

Team Foundation Server

TF31001: Team Foundation cannot retrieve the list of team projects from Team Foundation
Server mytfsserver. The Team Foundation Server returned the following error: 
Team Foundation services are not available from the server.

Technical information (for administrator):

  TF53011: domain\username is not a licensed user..

So I opened up Team Explorer on TFS server itself and added my domain account into licensed users group and everything worked fine after that.

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