I Googled on MS Project Agile and found several articles you might be interested in. One of the said the following regarding difficulties using MS Project:
1. Adding new tasks in between as they get discovered during the sprint causes havoc while using the tool
2. Tracking story and task completion in the context of sprint is difficult
3. Moving around the incomplete stories and tasks to different Iteration makes the project plan chaotic
4. Picturing Product and Sprint Backlogs while using MSProject is not so easy
I would try to Google this topic and see what pops up. Getting the information within the Agile community might be the best solution. Good luck to you.
Although MS Project could” be used for an agile project I wouldn’t consider it a preferred option. You “could” create several custom fields to track backlog, sprints, etc. which if done right could be a good poor man’s approach. Typical agile reporting of backlog, changes from daily scrum meetings, and other agile related concepts must all be configured and the results may not meet your needs. I would recommend an agile specific tool and then suppliment with a MS Project schedule if you need additional whole project reporting.
Ken, As Larry stated, it can be done but Project is not really the right tool. Although Project is great, using one of the Agile tools (ScrumWorks, Rally, VersionOne, etc.) which is geared towards Agile will save you a lot of headaches and let you focus on the Agile principles versus the tool.