If you are considering upgrading to Team Foundation Server 2012, you will have to upgrade your SQL Server version as depicted in this screenshot:
Once you have upgraded your SQL Server version, you should be able to pass the readiness check:
Once you pass the readiness checks, make sure you have backups of your Team Foundation Server 2010 databases prior to running the upgrade otherwise you may have to start all over with the upgrade process if it fails part of the way through!
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