What are the advantages of Time Capsule over Airport Extreme with an external hard drive?
As above the Time Capsule is the easy solution.

I can only really comment on your second point, I bought one about 3 years ago and 18 months ago the hard drive failed, it seemed to be a known problem as Apple replaced the Time Capsule free of charge even though it was outside of the warranty period. What could not be replaced however was the 18 months of backups as Apple would not have replaced the Time Capsule had I opened it up to get a the drive and try to recover the data. So after that experience I won't be buying another Time Capsule.

If you are not particularly after a router there are now other companies that offer Time Machine compatible network storage, which may be worth looking at.