Music Server?

I'm in market for new 802.11n router, external drive...

I also bought a AirPort Extreme, but thinking of returning it for Apple Time Capsule to store music/back-up, (this way there is one less connection for data to go through, instead of wireless sharing an drive via USB....)

So... Should I get an external hard drive or Time Capsule?

I just bought a new MacBook, I was thinking doing everything wirelessly. Most of music is WAV, some lossless.

Anyone having problems w/ wireless music server? Does it degrade sound quality? problems w/ big WAV files?

Store music on AppleTV would work but drive is too small for me... Can I swap out the tiny drive in AppleTV for a giant drive and have it directly into DAC? Does it use laptop type hardrive? (this way is good, my laptop w/ iTune can control it wirelessly, but laptop wont be tethered to equipment via USB/TosLink, no wireless is involved in music data)
Time capsule would work, its a nice simple turnkey system w/ wireless built in. Higher priced that other options but simple. I'm not sure but I think you might be able to plug a USB hard drive into your Apple TV, or Apple TV can access music stored on a NAS or networked computer somewhere. Sending your music over wireless in itself does not degrade it in any way. The apple products have more jitter than most here would like to see, so a jitter reducer between that and your DAC would improve things greatly. I just downloaded some WAV files and had a little trouble playing them on my mac, not sure why. I converted them to loseless and it smoothed out.