I am just reposting this thread from a MSDN forum since it seems to be unavailable. It was very useful when I was having trouble with my folder mappings after migrating to TFS 2010.

Question:
I opened VS2008 and connected it to the upgraded 2010 TFS server.  Upon clicking any of our Team Projects in source control explorer I get
"Team Foundation Error - The workspace MYWORKSPACE;DOMAIN\MYUsername already exists on computer MYPCNAME."

Answer:
The same local paths on your machine are mapped to 2 different workspaces, one on the preupgrade server and one on the postupgrade server.  It's not safe to have multiple workspaces on different servers mapped to the same local paths b/c you could pend some changes while connected to one server, and the other server would have no idea what you did.  You should either delete your conflicting workspaces from one of the servers (if you don't need them on both), or test the new TFS instance from a new workspace (on different machine).

If you want to test an existing production workspace on both servers, then yes, you will have to mess around with the workspace cache.

You don’t have to delete the entire cache, you just need to run "tf workspaces /remove:* /server:<serverurl>" to clear the cached workspaces from a server (the command won't delete the workspaces), and possibly "tf workspaces /server:<server>" to refresh the workspace cache for a given server.  You will also have to do back up and restore the workspace before switching servers or your local files could be inconsistent.

From the “Microsoft Visual Studio Team Foundation Server 2010 Beta 1” forum (not available anymore?)