Should I use a network-attached Time Capsule or a USB external drive with my MacBook Air? I love Macbook Air, but disk space is a real issue. This is most obvious when using it as main machine - media from iTunes and iPhoto in particular ends up leaving you with very little working space. How do you approach this problem?

How workable is it to keep this data on a Time Capsule shared drive? I can imagine initial performance when moving large amounts of songs etc. is quite poor, but how is it after that? Is, say, adding a batch of photos or incremental backup/sync of an iPhone noticeable?

A simple external drive attached via USB would seem the other obvious option. Or, perhaps the Air is simply never intended as a main machine - mobility is the key. In this case, do you temporarily dump media to it on-the-move and then move to your desktop when you get home?
it generally depends on being constantly connected (be it ethernet, wifi or some sort of 3g dongle) or not.

ultramobile and having the data everywhere where you have an internet connection: I personally have tried to host my 80gb itunes collection on a jungledisk (powered by amazon s3) and I can only say it's cumbersome. e.g.: you download new podcasts and end up re-uploading them to your s3 storage.

ultramobile and all your data at home on your network (e.g. time capsule or some sort of network attached storage): also did this for a while, no hickups, works great via 802.11g although I'd recommend 802.11n if you're likely to watch HD videos straight from your NAS/Time capsule.

ultramobile and all your data always with you: that's the approach I'm currently using, I have a 500g usb2 drive I carry in my notebook bag containing my itunes library and assorted other data (iphoto library and what not) that doesn't fit on the internal drive. 
It's my favorite solution as I have my data on me even if there is no internet connection available.

cheers
florian