If you are logged on to the local machine (not the domain) you will be prompted to enter network credentials when you open MTM to connect to TFS. However, if you receive a connection error when you attempt to run a test case, you may want to try the following work around.
- Go to the Test Plan
- Select properties
- Select you Test settings under Manual Runs
- Uncheck the ASP.NET Client Proxy collection
- Save and use that Test Settings Configuration to run a test case