Answer: Yes, you are free to do so.
Microsoft has done “functional, perf and stress testing” on TFS 2008 SP1 on SQL Server 2005 SP3 to ensure it works properly.
Additionally we installed and tested it on our TFS instances without any issues.
Note: Be aware that the installation takes some time (~ 10-25 minutes depending on your hardware) and it requires a reboot.
Download: SP3 for SQL Server 2005
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