Last month (June 2014), the United States District Court for the Western District of Washington decided to the contrary, ruling that a grant of TPS is indeed a legitimate inspection and admission. In doing so, they joined the position of the Sixth Circuit Court of Appeals that occurred just nearly a year earlier. Whereas all TPS-holders previously had to leave the country to apply for a green card (and in most cases thereby incur a 3- or 10-year bar against reentering), those living in the Western District of Washington or the Sixth Circuit now face no such obstacle. The Sixth Circuit includes Kentucky, Ohio, Michigan, and Tennessee.
As for those not so fortunate as to live in those areas, we can hope that USCIS will begin to adopt these views or that more courts will order them to do so. Although not every TPS-holder today can get a family-based green card, the possibilities are growing greater each day. You can read the Washington case for yourself.
UPDATE 3/31/2017: Today, the Ninth Circuit Court of Appeals issued a decision agreeing with the Western Washington and Sixth Circuit courts. This decision means that TPS-holders residing in the states of the Ninth Circuit -- Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington -- may now, barring any other problems, be considered "inspected and admitted" for the purposes of adjustment of status. This, in turn, opens the possibility that these TPS-holders may qualify for adjustment of status to permanent residence through a family member. One word of caution: this decision was issued by a panel of the Ninth Circuit Court. It is possible that the Court could be petitioned to re-hear the case before all the judges together (en banc) which could lead to this decision being reversed. For now, however, the decision is the law. If you hold TPS and live in one of those states, speak with an immigration attorney right away to determine the possibilities in your case.