I absolutely love the idea of using the capsules as buttons.
It's going to be a lot of work, but you will have a totally unique interface.
Don't forget that you can by bulk switches and LED's on ebay. I bought 100 blue LED's way back when they were stll very expencieve and saved a bundle by bying from ebay.
The samll tactile switches are cheap, especially if you buy bulk.
Just google a bit to make sure you by from an eBay seller with a good reputation.
Please post your progress in the exibition forum.
EDIT: a little tip, in stead of sanding all the capsules, i think that you can get a spray laquer that will give you a frosted look, might be a lot easier.