>> "The only practical solution as I see it is for us to host their floating server, but us having one PC or even one VM per client is not a scalable solution."
This will be solved by us very soon. We're going to have a free tier where "1" allowed lease be TFS instance hosted on our infrastructure will be free. Meaning customers can setup the TFS instance on our site and they won't need to install anything. (Although if they would prefer install the TFS instance on their infrastructure that will always be an option).
This is coming ASAP.