How does everyone manage there 3rd party references in VSTS Source Control?  What do you guys do with all references to IG/telerik controls?  Do you install them all on each developer's machine and hope that they are set up identically?  Do you copy them all to a single directory and then link them to that directory? 

Put them in the GAC. Simple as that.

For cases where its not possible (very, very rare, and usually shows that there's an issue with the way the project is setup and someone needs to get slapped, but sometimes no amount of slapping helps), we map a network drive to a local directory, so that no matter which directory people put their DLLs in, its all the same drive letter, and reference to that. Have to tweak up permissions though (but i think with 2008 SP1 thats not required anymore?)

 If the install puts the components in the GAC, then fine. The GAC can handle multiple versions.

I am working on a set of TFS solutions - our common components may well be strong-named so they be loaded to the GAC instead of being loaded to a network share.

How do you add references if the file is in the GAC since you cannot add a reference to a file in the GAC?

You don't need to add the reference. The person who originally need that reference does so. Then everyone else puts the DLLs in the GAC. Apps always look in the GAC -first-, then try to resolve the reference locally on disk... since it finds it in the GAC, it will never try to look for it elsewhere.

The original person will have to have the assembly on disk normally to -add- the reference, but thats the only time it will be required. After that, they just checkin the project files, and everyone who has the assemblies in the GAC will not have any problem.

But when I checkin the file to source control and someone does get latest this will cause an error in there project because the reference file does not exist in that location.

No, it won't cause an error if they have it in the GAC. The app will always look for the GAC -first-, if it doesn't find it there, THEN it will look on the location, and if its not there, it will complain. If its in the GAC it will work fine. You can even mix and match and have part of your team having the DLLs locally (as long as its all in the same place) and other people having it in the GAC, working on the same project. Works fine (we actually do that here...for better or worse. Probably worse.)