While the method you outline may work, Apple has much easier tools built into OS X that are meant for moving from one mac to a new one (which is essentially what you're doing). Basically you need to backup your data, create a Lion installation disk, install Lion on the new drive and use Migration Assistant to restore your data.
The Migration Assistant allows you to recovery your data from either a Time Machine backup or a bootable clone. You mentioned making an image on the Time Capsule. It's my understanding that you can use the Time Capsule for Time Machine or as an external hard drive, but not both. Even if you can get it to work, it's messy.
While you can recover from a Time Machine backup, I tend to be overly cautious when dealing with my data and like to have some redundancy. I would highly recommend buying a 250GB external drive (you can get them on Amazon for around $60) and making a bootable clone of your disk. It never hurts to have an extra drive around. Whichever way you decide to go, here's what you need to do -
Run your normal Time Machine backup to make sure it's up to date.
Create a bootable clone using Carbon Copy Cloner as previously recommended. If you go this route, CCC can also create a clone of the Recovery HD (explained below).
Create Lion Recovery Disk
When you installed Lion, it should have created a hidden partition known as the Recovery HD. You can boot from that just like you could from the Snow Leopard DVD. Apple has released a tool that will make a bootable copy of the Recovery HD on a USB thumb drive. If you used the Carbon Copy Cloner option above, you'll already have a copy of the Recovery HD on your external drive and can skip these steps (unless you want an install thumb drive "just in case").
For some reason, some people don't have this partition installed. To verify it exists on your machine, shut down and then hold the option key while restarting. You should get a list of drives that you can boot from. Verify Recovery HD is listed. I'll cover what to do if it's not later.
Download the Lion Recovery Disk Assistant.
Insert a USB thumb drive. Apple says at least 1GB, but many are recommending at least 4GB.
Run the tool and follow the instructions.
If for some reason you don't have the Recovery HD partition, you can still create the USB drive, it's just a bit more involved. TUAW has a good walk through of how to do this.
Replace Your Drive & Install Lion
You're ready! Pop in that new hard drive, then boot from the Recovery HD on the USB drive you just created or on the external drive you put your clone on (Hold down option key while starting the system and select the drive. It should be named Recovery HD). Install Lion just as you would install from DVD. You will need internet access since the installer calls home to get additional files. The process took about an hour for me.
Copy Data Using Migration Assistant
Once the installer is done it will reboot your mac from the new drive and you'll see the Lion welcome screen that greets purchasers of a new mac. Follow the prompts and you'll be given the option to move your accounts from an old computer or drive. You'll be asked if you want to recover from a Time Machine backup, another mac or an external drive. If you have the clone, choose the external drive option, if not select Time Machine. You'll then be presented with options on what data you want to migrate. Just select everything and let the Migration Assistant go to work.
When the tool is finished you can reboot your mac and everything will be back to where it was. You won't even notice you've got a new drive until you want to use all that extra space.