Service Packs for VSTS/TFS do not only contain bug fixes, but quite a few nice new features as you can read here (more general) and here (TFS-specific).
If you have trouble installing SP1 look here and here.
Tip #1: Uninstall Visual Studio Hotfixes first
If you previously installed a Visual Studio 2008 Hotfix, you must run the Hotfix Cleanup Utility before installing Visual Studio 2008 SP1. For more information, see Visual Studio 2008 Hotfix Cleanup Utility for Installing Visual Studio 2008 SP1.
Tip #2: Have enough disk space available on your primary hard drive:
You can read here why.
Tip #3: If you have Team Explorer or TSWA on your TFS you need to install… (Thanks to Hakan Eskici)
… Visual Studio 2008 Service Pack 1 and TFS 2008 Service Pack 1 (in that order!).
Tip #4: Integrate installation of TFS and SP1 (“Slipstream”)
The steps to produce a so-called “slipstream” installation package are documented in the TFS Installation Guide in the chapter “How to: Integrate the Installation of Team Foundation Server and Service Pack 1“.
There are a few reasons why you must do that (e.g. upgrading to SQL Server 2008) you can read in Brian Harry’s blog post.
Tip #5: Ignore Windows Update reboot prompt (Thanks to Brian Harry)
If you get a Windows Update prompt to reboot during SP1 installation, ignore it (don’t reboot). Wait until after the SP1 installation completes and then reboot.
Tip #6: Uninstall and reinstall Team System for Database Development GDR (Thanks to Brian Harry)
If you have a prerelease of the Team System for Database Development GDR (that supports SQL 2008) installed, you will need to reinstall it after upgrading to SP1.
Screenshots from applying TFS 2008 SP1:
Screenshots from applying VS 2008 SP1 (online installer) on at TFS with only Team Explorer installed: