I had this same problem using TOAD 10.6 and TFS 2010. I now have it working, here is what I did.
Make sure your workspace in TFS is set up properly and team coding is logging into the correct one. You can force the team coding login to select a different workspace
by going to team coding status -> settings -> provider options and uncheck the box that says “login to default workspace”. This will force you to select a workspace when you log in to TFS from TOAD so you can see which one you are logging into. Workspaces are set up in Visual Studio under File -> source control -> Workspaces. This determines where your TFS files are placed upon checkout.
Now back in TOAD, after you have set up your Code Control Group, you select the “Export to VCS” to create your initial TFS files from the DB objects. You will get four export options. I found the first one “Add objects not existing in VCS” will throw the TF0121 error. Use “Create a revision only if the revision has changed” or “Prompt individually for all existing objects” and you will not get the error. If you are getting the error, try different choices.
If I am reading your issue correctly, this is a known issue with TFS in 10.6 and
11.0. There are a number of workarounds mentioned on the groups. Most involve
doing a full checkout to the workspace from Visual Studio. This updates the
client WorkSpace correctly and enables Toad to checkin/checkout without errors.
A fix for the issue has been added to the beta and will be in Toad 11.1.