Time Capsule setup - can't connect properly

I'm having trouble setting up a new 2GB Time Capsule... a quick summary of the hardware and software:
New 2GB Time Capsule
MacBook Pro running 10.5.8
AirPort Utility 5.5.1
There's already a wireless network up and running, and the TC will be hooked up to the broadband modem.
This is what happens:
1. I plug in the TC.
2. It seems to start OK, and gets to the slow flashing amber light
3. I select Apple Network xxxxxx in the menu bar - seems to select ok (actually, it turns out that it doesn't matter whether I do this step or not)
4. I launch Airport Utility
5. Time Capsule xxxxx appears at the top of the left column. In the right-hand panel, it says "Airport found a Time Capsule... yadda yadda... Click Continue to set up this Time Capsule".
6. I click 'Continue'
7. At this point, whether or not I have already selected the new Apple Network xxx, Airport Utility asks "Are you sure you want to switch wireless networks? Setting up this Airport wireless device requires switching wireless networks. Switching wireless networks may interrupt your connection to the internet."
8. So I click 'Switch'.
9. Airport Utility looks busy, and says "Reading the Time Capsule configuration" for a little while...
10. It then says "Base Station Error. Airport Utility was unable to find your Airport device."
Same thing if I try 'Manual Setup' instead of 'Continue' at stage 6.
That's it. I can't get any further. I've tried doing a reset on the Time Capsule, and connecting via ethernet (as recommended for a first backup), but nothing seems to help.
Any ideas?

Welcome to the discussions!
Suggest that you perform a Factory Default Reset on the Time Capsule (TC).
Power down the TC and wait 5-10 minutes
Hold in the reset button and while you continue to hold the reset button in, plug the power back into the TC
Release the reset button after 8-10 seconds
Turn wireless off on your computer and temporarily connect a known, good ethernet cable from your computer to one of the LAN <-> ports on the TC. Open AirPort Utility to see if this setup will allow you to configure the device.
Repeated restarts and scans can temporarily lock up the TC, so if you need to do the factory default reset again, power it down and wait for approximately 30 minutes before you reset the TC again.
If you try the factory default reset 3-4 times and AirPort Utility still cannot configure the TC, it is time to call Apple support for a probable replacement.

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Time Capsule setup - can't connect properly

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