"I am no tax expert either, and just going by what I was told with an in-kind transfer into an RRSP, so I assumed the same for TFSA. What I was told with the RRSP, was that you have to pay capital gains, but do not get to use capital losses. Which does not seem right, but is what I was told."

You're correct Quan Gork. The same thing applies to TSFA.

You have to sell to be able to use capital losses and you have to wait 30 days to buy again in your TSFA.