i have a airport express 1st generation and now i bought a Air Time Capsule. I cannot see the device in the airport utilities, however I saw it in the networking connections. How can i reset the system?

It's always best to start over when adding additional hardware. I would suggest that you perform a "factory default" reset on the AirPort Express. Also to make it easier to administer both base stations, temporarily connect the Express to the Time Capsule using an Ethernet cable. Once configured you can disconnect the Express and place it at the desired location.