Not just with the wifi but even when connected directly via ethernet.
People on forums suggested all sorts of things including downgrading the firmware.
Turns out the culprit is my backup software. The cpu on the Time Capsule isn't powerful enough.
Throttling down the network usage by the backup software helped solve the issue.
I use CrashPlan. Under Advance > Network, you can change the upload/download speed limits for WAN and LAN.
Update
Turns out that still didn't solve the issue. It's a known issue -- Apple Time Capsule SUCKS as a router.
The Time Capsule lacks QoS, so this might be an issue under certain circumstances. Here is my story:
1. I used to be on a 8.5/0.8 Mbps ADSL2+ Internet connection. The actual speeds I was getting were 7300 kbps for download and 680 kbps for upload. I was using the G711 high quality voice codec for VoIP. Even if I was saturating the download channel, the voice quality - me hearing the remote party - was superb. Not sure why this happened, but I would guess the packets were prioritised somehow form the source (my VoIP provider). The upload was a different story. As soon as I was uploading something (e.g. sending large photos by e-mail), the voice quality - the remote party hearing me - had to suffer significantly. Conclusion: do not upload anything major while talking on the phone, and/or switch to the more effective G729a codec.
2. More recently I switched to VDSL2 and I am getting 25 Mbps for download and 7 Mbps for upload. It appears that it is virtually impossible to saturate the upload now. Not only the voice quality is unperturbed, but the upload of large files takes only a few seconds, so the potential to affect the voice quality is very short. Conclusion: I can live with this situation.
It would be nice if Apple would get their act together and add QoS to the AE and TC. With the proliferation of VoIP, it would become a mandatory feature to have.
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