Even after trying as the project administrator, same problem repeated. After going through some stuff it was know that TFS 2010 test manager cannot use the TFS 2008 features, because TFS 2008 doesn’t have the Test and lab features. So, TFS 2008 doesn’t have the test and lab features that are included in TFS 2010.
Solution: upgrade the server to TFS 2010 in order to connect from the client.