Do a backup, using either Time Machine or a cloning program, to ensure files/data can be recovered. Two backups are better than one.
Try setting up another admin user account to see if the same problem continues. If Back-to-My Mac is selected in System Preferences, the Guest account will not work. The intent is to see if it is specific to one account or a system wide problem. This account can be deleted later.
If the problem is still there, try booting into the Safe Mode. Shut down the computer and then power it back up. Immediately after hearing the startup chime, hold down the shift key and continue to hold it until the gray Apple icon and a progress bar appear. The boot up is significantly slower than normal. This will reset some caches, forces a directory check, and disables all startup and login items, among other things. If the system operates normally, there may be 3rd party applications which are causing a problem. Try deleting/disabling the third party applications after a restart. For each disable/delete, you will need to restart if you don't do them all at once.
I tried that and couldnt find anything. Opened the machine in safe mode and the graphics went funny so then restarted and it now appears to be fine although it is saying its 'looking for backup disk' in TC which was how this all started. Very frustrating re TC although it seems that others are having similar issues
Thanks for your help
Glad the other stuff appears to be working. On to Time Capsule.
1. Try going to System Preferences/Time Machine and remove the Time Capsule as the backup drive. Then add it back and select Backup Now.
2. If that doesn't work, double click on the Sparse Disk Image Bundle and see if it mounts in Finder. If so, try selecting Backup Now again.
Apple/other troubleshooting support articles:
Sorry for the delayed reply. Ive tried both. Ive removed it as you suggested and re added it. I can also mount it and see the Sparsebundle file. It seems to mount but then just says 'looking for backup drive'
Ive tried taking out the .plist file and no joy there either. Which is frustrating.
Not quite sure whats happened to it
Have you tried turning the Time Capsule on, letting it sit for a couple of minutes, and then turning it back on?
Can you see the Time Capsule in Airport Utility?
Try doing a reset. Start with soft and work your way up.