Like HH says above, you can use Time Machine with the external Iomega drive, so no extra backup software is necessary. If you're backing up a single desktop machine (iMac or Mac Pro tower), this will probably be just fine for you. Just connect the drive to your Mac with the appropriate cable (USB or Firewire).
The real advantages of the Time Capsule show up when you've got a portable Mac or more than one Mac.
If you've got a portable computer you probably don't want it to be tied down to a desk by connecting it to an external drive. You'd have to remember to frequently re-connect the USB/Firewire cable whenever you brought the computer back to "home base." Relying on that isn't a good thing in a backup plan. With the Time Capsule, Time Machine would be able to back up the computer every hour whenever it's used within range of your wireless network. All automatic.
If you have two or more Macs, Time Machine can back them all up to the same Time Capsule. You can't (reasonably) do that with a single external drive.
So, I think a lot of the decision depends upon the type and number of computers you want to back up.
Regards,
Brian33