TfsBuild.proj files can be located anywhere in source control in Team Build 2008. That is the reason why MS changed the default recursion type used to download files from the location of TfsBuild.proj to OneLevel only. The meaning is that only the contents of the exact directory of TfsBuild.proj are downloaded.
Aaron Hallberg posted a solution to change this behavior.
We have to modify the following line in the TfsBuildService.exe.config on the build machine:
<add key="ConfigurationFolderRecursionType" value="Full" />
Make sure to restart the service after making the change!