I've been using a faithful DG834GT router for as long as I've had an ADSL connection, but it is now showing its age. I recently bought a Time Capsule with an inbuilt 802.11n router. Unfortunately, it caused my internet to drop out sporadically, especially under heavy loads. I suspected a protocol mismatch between the ADSL modem and the Time Capsule. After hours on Google, I discovered the problem was inherent to all Apple routers.
It seems Time Capsules are designed by Americans for Americans. The majority of Americans connect to the internet via cable modems, rather than ADSL. Although the two kinds of connection are otherwise much the same, the PPPoE standard used by ADSL requires 8 bytes of overhead for each packet. The standard maximum transmission unit (MTU) is 1500 bytes, which is apparently hard-coded into Apple routers, whereas ADSL only handles packets up to 1492 bytes. Under heavy use, it seems this minor mismatch befuddles the Time Capsule.
Unfortunately, there is no way to adjust the MTU of Apple routers (for reasons I can't understand), so instead I limited the MTU within the network settings of each of my devices. To maximise throughput, the MTU should be kept as large as possible. This post suggests an optimal size of 1452 bytes for ADSL connections. I opted for 1400 as a conservative setting; beware though, setting the MTU too low affects streaming applications like Skype, causing an unreliable connection.
I have been operating with an MTU of 1400 for months and haven't seen any dropouts or router freezes, so hopefully this information is useful to others suffering the same problem.
Update: The simpler solution is to switch your ADSL connection to PPPoA, if your ISP allows it, as PPPoA does not have an 8-byte overhead.
Update (2026): Apple discontinued its AirPort routers and Time Capsule in 2018, so this applies only to the old hardware.
The numbers check out: RFC 2516 limits the PPP payload over PPPoE to 1492 bytes (an 8-byte header inside Ethernet's 1500), whereas PPPoA's MTU is 1500 (RFC 2364). RFC 4638 later let PPPoE links negotiate 1500 where both ends support it. Other users at the time reported that AirPort Utility offered no MTU setting for PPPoE, as I found, but I have not found an authoritative statement from Apple.