First, Team Foundation Server is not supported in Microsoft Q&A. Given that this is quite an old product, I don't know if it is supported anywhere these days.
The error message suggests that you need to install SQL Server first. Then again, I think TFS defaults to use SQL Server Express, and in that case the instance name would be SQLEXPRESS. So maybe you have gone lost somewhere in the configuration. That could be worth checking out. Else, you would need to go ahead and install SQL Server first.