I tried resetting TC before like this to no avail but until reading your post had not tried it using Lion 10.7.1. Until now if I put power to the TC it knocked out the WiFi and Lion would not configure it. However, I pressed the hard reset button not once but three times. Third time was lucky. On the first press Lion saw the TC, I noticed it did not knock out the WiFi or affect the network as it did before (even after a hard re-set) but it would not configure. I tried again, no luck. I then made sure TC was completely erased, shut down the iMac and rebooted. After presing the reset button on the TC again Lion was happy and configured it. I am now running a backup again and the network seems to be operating.
My other network problem - going to sleep and reawakening immediately seems to have abated. That was not related to the TC. Not sure what has happened for Lion to now be happy as I have done nothing and even after installing 10.7.1 yesterday the problem was there. It seems now it has gone. Perhaps the heading to this forum telling us to settle down is in fact what has happened to Lion on my machine!
Now to see why iCal does not sync, a separate issue debated in another forum.