How do i change the MTU setting on my time capsule

None of Apple's base stations have any MTU setting. This is because all of them pass the packets through without changing the MTU.

Oddly enough, I just started getting this warning today and I never had an issue before.

Probably because Live itself is currently down.

+I could be another lincoln, if only I was thinkin, if I only had a brain....+

You shouldn't have to change MTU size with modern day equipment. If you do though, you need to change it under:-

System Preferences - Network - Advanced - Ethernet - MTU

I doubt it will be anything other then 1500, especially for something like XBOX live.

M

The instructions you posted changes the MTU used on that Mac only. It does not affect the MTU used by the Xbox nor any other device on the network.