Wow. First experience with Time Capsule ("TC") was very bad.
My setup is as follows: Cable Modem - TC - Computer via ethernet
There is a bug (depending on how you initially configure TC), that will give you a "Connection Timeout" error when trying to connect a wireless computer to your wireless network. Other than not being able to connect wireless computers, everything else was working great, i.e, it backed up my data and i was able to get on the internet via ethernet to my main computer.
SOLUTION: After talking with Tech Support, the solution must be followed EXACTLY as follows:
Unplug TC. Then go into System Prefs-Network. Click on the little widget looking wheel in the bottom left and select "Set Service Order". Drag Airport to the top of the list. Click Apply. Then shutdown the computer. Finally, unplug your cable modem/DSL. [Your TC must be shutdown before you configure the settings in Network because the computer will automatically move Ethernet to the top of the list, i.e., above Airport] Leave everything shut off/unplugged for 5 full minutes. Then turn on your gear in the following order. First the Cable Modem/DSL till all the lights are on. Then plug in TC until you get a solid green light. Finally, boot up your computer.
I saw in another thread that someone posted the following fix: "In Keychain Access, delete everything related to Airport. Be sure to do this under both the login and System keychains (which can be selected on the left side of the window; if they are not visible, click on the small arrow on the bottom left side of the window)"
So it seems that if the ethernet grabs your internet signal before TC can send it out wirelessly, you MAY have get stuck with the "Connection Timeout" error.
Please fix Apple. Grrrrrrrr
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