One more question: If the drive fails, do you work off of the external drive from then on, or do you have the hard drive replaced?
Although it would be possible to have a bootable image or partition on the Time Machine drive it is usually
NOT a bootable drive nor or the files in the Time Capsule directly usable. (You do not really need to know this technicality, but FWIW Time Machine backups are physically stored in a
sparse image bundle — something like a .dmg file on the host disk drive.)
In the
worst case scenario of a complete mechanical HD failure you would replace, or have Applecare replace, the failed drive in your MacBook and then restore all your applications and files from your Time Machine backup.
A more likely scenario would be a failure that trashed the volume structure on your boot drive rather than a complete mechanical failure. In that case you would reboot while holding down the Option key and select the
Recovery HD partition Lion automatically puts on each bootable drive. From there you can run Disk Utility and repair or erase the failed volume and then restore the lost system and data files from the Time Machine volume.
