I know this is an old post but I just wanted to point out that it has solved the issue for me. We had the same error message because a user had been deleted, then recreated and we ended up with the 'working folder is in use by another workspace'
error that we could not get rid of by deleting workspaces, clearing local cache etc. The only thing that fixed it was going into the DB and deleting the working folders for the workspace in question.
Execute the following SQL against the TfsVersionControl database
-- search for the working folder which is causing the problem.select*from tbl_workingfolder
-- now find the relevant workspace using the workspaceid returned in the first query so we can verify we are looking at the right one
select*from tbl_workspace where workspaceid=<<workspace id from workingfolder row>>
-- when you are sure you have the correct workspace, delete the workingfolders for it. (I chose to delete them all but you could just delete the one that causes the problem)
tbl_workingfolder where workspaceid=<<workspaceid>>
Hope that is of some help