TeamTest doesn't work if there's a setup project in the solution. I've had error messages like: "Package 'LoadTestPackage' has failed to load properly...", "Exception has been thrown by the target of an invocation" and "Illegal characters in path".
The simplest workaround is to create a new solution and include the code project and the unit test project, but not the merge module. Any changes to the code will be reflected in both solutions.
I've reported it as a bug, so we'll see what happens.