I'm thinking of migrating over finally to a Mac via Mac Mini 2.66Ghz/500Gb drive
Would it be a good idea to also purcahse a Time Capsule at the same time
Also would the Time Capsule replace my Linksys wireless router ?
Depends: a Time Capsule is the combination of a Wireless router and a NAS/USB drive. About the Wireless router, there are few real advantages when compared to other routers - so it will depend on what you really need/use and your actual router's features.
As a backup/NAS drive, it's always good to have one - specially the backup part. As a drive, the TC is slow compared to Firewire. But since you have a Mac Mini, the network access is not as useful as when you have a mobile computer and work around without loosing access.
Personally I'm not too excited about TC. Firstly, because I've learned not to put all your eggs in the same basket. If the drive or the router fails, you're out of luck with both. Secondly, because the drive access is really slow, either for backup or file access. And third, I would not sacrifice the previous issues in favor of the little extras TC offers (dual bandwidth, etc). And specially not with a desktop, when you can use file sharing to accomplish Backup/NAS file access with a laptop.
IMO, keeping your router (or getting a better one, eg. Wireless N)
and getting a good/big/fast external drive with Firewire would be a better deal. Any money left you can use for more RAM or any other upgrade/accesory.
cheers!
