I had the generation 1 Time Capsule, and it was pretty much the worst piece of Apple hardware Ive ever owned.
It would randomly (after months) just start blinking amber for no reason. Apple said it was because of failed or cut-off wireless backups. Sorry, but Im not going to check to make sure Time Machine/Capsule is not in the middle of a backup before I sleep or shut down my notebook.
They replaced it once, but said it checked out OK the other two times. I probably had to rebuild my full Time Machine backup four or five times from scratch in the 13 months I owned it.
The biggest problem with it is the drive is sealed and AirPort Utility cant run diagnostics on the drive (like repair permissions, repair disk, recovery, etc). I have read that if your Time Capsule drive still mounts properly, you can then use Disk Utility on your Mac to do some basic maintenance tasks.
Right after I got rid of mine, Apple released a flurry of updates for Mac OS X and the Time Capsule device itself. So, they may have fixed it at this point.
However, I moved to an AirPort Extreme Base Station with an external drive and havent looked back. I use the AirDisk at my Time Machine backup drive even though Apple doesnt officially support it.
Word of warning though, if you get a Time Capsule and you need it repaired Apple only gives you one repair option let them replace the entire unit (they wont even attempt to recover your data). By opening the device to perform data recovery or even simple disk maintenance, you automatically void the warranty.