Time Capsules uses regular Hitachi Deskstar 7K1000 HDD

So, when Apple say that Time Capsule uses a

massive 500GB or 1TB server-grade hard drive

what they really mean is that it contains regular Hitachi Deskstar 7K drives, namely the 7K1000 for the 1TB unit and -probably- the E7K500 for the 500GB unit.
This can be seen on pictures of a 1TB Time Capsule's innards taken by nakedmac and posted on flickr.
According to Hitachi's spec sheets, these drives are tailored for

Internal and external storage for consumer computers
Networked storage servers
Extreme gaming machines
Video editing arrays

So in a sense yes they are "network-grade".
Check out the longer post on the Hardmac Blog, complete with a price/cost analysis.