Hi mc user,
Normally STS will automatically configure the tc server instance that is included with the dirstribution. However, there is a little catch. This configuration is stored in your workspace. So for this to work, you should start with a clean workspace. If you start STS on an old workspace that already has a server configuration in it (possibly an old configuration pointing to a server instance that doesn't even exist anymore) then it doesn't work.
Could it be that you were using a new STS install with an old workspace?
If so, please try again with a clean/new workspace and see if that solves your problem.
Kris De Volder -- SpringSource