WD Smartware and time machine error -1 accessing backup disk

I saw a lot of postings in here but didn't see this solution addressed, so I'm documenting it for others.

After I upgraded to Lion, time machine on my MBP stopped working. It gave me an error message window that

Time Machine could not complete the backup

The backup disk image could not be accessed (error -1).

I was getting this message, but my buddy who has the same MBP model, was not having any backup problems.

After calling apple support, it turned out that I had two issues. First, Lion is incompatible with WD Smartware, which I had installed on my MBP (but my buddy did not). You can't even have WD Smartware sitting in your trash bin. I used the WD uninstaller to remove the software and then emptied the trash bin.

Second, a new firmware update was available for my Time Capsule. It was apparently released in the last week or month. I guess I had not run Airport Utility since installing Lion and missed the new version. After installing the firmware update, Time Machine was able to backup my MBP. The support rep said this firmware update also included fixes that may address the intermittent wireless problems we have been having with our TC router since upgrading to Lion.