New Airport Time Capsule Dropping Wifi/Internet with 7.7.1

Last week I bought a new Airport 2TB Time Capsule and had everything up and running within minutes. However, less than 24 hours later, the wifi signal started dropping devices all around the house. It started with the AppleTV, and eventually dropped our iPhones and iPad as well. The problem is one I've seen on these forums before (however, not with this new model).
I since exchanged it, and the new model is having the identical issues.
Basically, the problem is 1 of 3 things:
1. You'll look down at your iPhone (or whatever device that is wirelessly connected), and see a full wifi signal. However, you'll have lost access to the Internet. Using the AirPort app won't find the Airport Time Capsule. Sometimes turning off wifi on the iPhone and turning it back on fixes the issue, sometimes the Airport Time Capsule needs to be restarted.
2. The AirPort Time Capsule stops broadcasting SSID at random intervals. Even when standing right next to it, there is no way to join the network.
3. The Internet connection drops in the middle of a browsing session (usually while using an iPhone).
On both devices (the original new one, and the replacement exchange), I immediately ran the firmware update. So, I'm thinking this could be a firmware issue.
This router replaces a Linksys e3000 that was working flawlessly. It's connected to a Cox Cable Cisco DOCSIS 3.0 modem (modem only, no router). The AirPort Time Capsule runs in WPA2 protected mode. It's running DHCP and NAT, and 2.4 and 5ghz are currently running the same network name (although I've tried separating them to no effect).
I am at my wits end. I find it hard to believe that both of these routers are defective. And I also find it hard to believe that I'm doing something wrong in the setup of this simple device, considering I've been working with all kinds of very complicated routers for over a decade without this kind of problem.
So I come to you, community, for help!
Thank you in advance!

I don't have one.. but your testing is conclusive.. the TC is not stable on this firmware.. Apple will no doubt fix it .. I think their secrecy in marketing leads to less than adequate testing.. you are expecting to buy a mature product.. remember this is a ground breaker.. this is the first all new design since Gen1 TC.. all previous models used Maxell processor and chipset.. albeit with various wireless cards.. now it is broadcom.. processor and wireless.. this also runs apple written firmware.
Broadcom OEM firmware.(linux and hence open source) supplied to all manufacturers of products based on the chipset.. well that would be just wrong for apple... it has to be done in NETBSD,, so it is not open source.. the very thought.. open source.. . that would give everyone access to controls apple don't want you to have.. http setup even.. couldn't allow that.. so apple have to write the firmware from scratch and to match all those apple protocols. Hence where they are now now.
And your role is beta tester.. didn't you know.
Return it and stick with your Linksys (broadcom, Linux open source) until Gen 6 TC comes out.
Unless you like the bleeding edge.

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The setup is wrong..
Thanks for the screen shot.. that indeed answered my question.
You see the LAN IP is your public IP.. this is wrong. The TC is either bridged or set to static IP.
But it has to be working as the main router of the network.
The reason you are having trouble is the ISP only will pass one IP and the first device to turn on captures it. The rest will have wireless without internet.
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And make sure the Network tab is set to DHCP and NAT
You might need to power cycle the cable modem.. this can take 20min off time.. and sometimes more.. for it to correctly allocate the public IP to the TC.
In the new setup.. change your names to short (2-20 characters), no spaces and pure alphanumeric. Your list in the first post includes windows devices.. and the current name is not SMB compatible.
Wireless names should also follow suit. JWD as shortened form of the TC name.
JWD24ghz for the 2.4ghz name
JWD5ghz for the 5ghz name..
Just while you have issues.. set names to both bands.. so you can pick and choose.. again works better on non-apple stuff. And you can also try fixing wireless channels which also can help.
For 2.4ghz wireless there are only three non-overlapping.. 11, 6, 1 which I list in backwards order because that is the best way to try them..
For 5ghz.. a low channels.. 36-44 pick whatever.. and a high channel >100..
Post your results.

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CS

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How to connect New Airport Time Capsule to non Apple asdl router

Guys,
I have just purchased a new AirPort Time Capsule to back up the various macs in my house. I want to connect it to my wireless router which is a non apple product but the setup instructions are a little unclear to me.
My current router has simply a phone line connector and the power source coming into it. Do I simply connect an ethernet cable from the Airport to the Router. And if so, do I use the single Ethernet WAN port or one of the three Ethernet LAN ports on the rear of the airport? I assume the other end of the cable goes into any of the Ethernet slots on the back of my router which are marked 'Ethernet', or would it go into the socket marked 'Broadband WAN'?
Appreciate your help and if anyone is willing to speak on phone, I am very ahppy to call you in the next couple of hours! I am in the UK
Best, Anthony

thanks LaPastengue!
Here is what ive got
What ATT router do you have? Exact make and model please.
    gateway 2wire from at&t
What TC do you have.. Latest AC tall one?? Or older one?? If older. .please tell us the model number. A1409 for example from the base mat.
     yes I have the latest airport time capsule 2TB
Please tell us the full setup.. what is currently plugged into the main modem router??
     The Main modem route has an ethernet cord plugged in the other side of the cord is plugged into the phone      jack
Do not plug the TC in first.. plug a single ethernet TC to the computer.. Hmm. so I need an additional ethenet cord to plug the TC into the computer? Leaving the router plugged in as is?
Open the airport utility and change the TC to bridge mode.
https://discussions.apple.com/servlet/JiveServlet/downloadImage/2-23706673-32722 6/450-411/bridgev6AU.png
Update the TC and then plug it into the ATT modem and plug it into your computer or use the wireless and then tell us what happens.

I set up a new airport time capsule. Most devices work fine however now my apple tv 2nd gen won't work.

I set up a new airport time capsule. Most devices connected fine however now my apple tv 2nd gen won't work. I turn it on and it searches for time and date but goes no further. I can't by pass it either. Any suggestions?

I can't by pass it either. Any suggestions?
Does that mean you cannot move it to the TC and plug in by ethernet? What does bypass mean?
I would still move it closer to the TC.. and just trial it there. Range on some AC models for 2.4ghz is worse than old one. For some people.
Another thing to try is fixed wireless channels.. one of the very few options still available in the AC model.. lock the 2.4ghz to 11, 6, 1 .. try it in that order.

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Most ISP correctly block SMB over internet. It is too insecure .. use VPN to a different router and place the TC behind it.
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