May not be for the faint of heart, but I installed OpenTera firmware, and updated to Samba 3.0. Now I am able to read/write my TeraStation with OSX Lion. Do a google on "OpenTera" and "TeraStation Telnet firmware" and you will find it. The steps are:
1. Flash a new firmware with Telnet enabled from here: http://homepage.ntlworld.com/itimpi/telnet.htm?
2. Install the OpenTera v5 upgrade, and then Samba 3 (3.0.37) from here: http://homepage.ntlworld.com/itimpi/opentera.htm?
I don't use the TeraStation for Time Machine, so I can't say about that. All I know is that I can now read and write to the drive, as I could before. Again, do it only if you are comfortable using Unix command line tools, as you can end up hosing your firmware if you do something wrong. Generally, it is hard to hose up your data, and flashing back to the stock firmware should put you back to where you were, BUT, as always, caveat emptor.
(Oh, and as a side benefit, my write throughput on TeraStation went up from about 5 MB/s to 7 MB/s as a result of the Samba upgrade)