I'm setting up a testing environment from scratch and most of the testing we do will be in the UI space. Consequently, I've chosen Mercury MFT (formerly QTP) for this but would also like to be able to use the Bug management in TFS without my testers having to go from application to application. Has anyone integrated MFT in this way and if so, how

Mercury QTP
Atiz
Can you post this same question over in the work item tracking forum. They will have more info on third parties that are working on integration:
Here is the link: http://forums.microsoft.com/MSDN/ShowForum.aspx ForumID=479&SiteID=1