So here is the backstory: we have traditionally developed in Visual Studio 2008 using Visual SourceSafe 2005 (I know, right!) and Web Deployment Projects 2008. We always had configuration section replacements done on our web projects. So we upgraded to TFS 2010 and VS 2010. But after reading all about Web.config transformations here at MSDN, I could not get it to work on a team build. So after a lot of digging and experimentation, I discovered the following settings need added to your Team Build Definition and viola, it will build it as a deployment project with the web.config transformed!
So basically just add “/p:CreatePackageOnPublish=true /p:DeployOnBuild=true” and you’re set!