Credo,
I might be having the same problem since updating to 1.06... doesn't appear to be drive activity, though, just the center light above the power button is blinking constantly and won't stop. Have tried restarting via web interface, shutting down power manually, even restoring to factory defaults. This occurs even when there is no activity on my network, and the drives don't appear to be accessed. What gives, I wonder...?
FOLLOWUP: This morning (1/22), for whatever reason, the middle light is back to normal! Weird thing is, last night I had no end of trouble watching one of my DVD disc images on my home theatre from the DNS-323... stuttering near-constantly after the first hour! Tried watching via TheaterTek on my Vista PC as well as Apple TV (via nitoTV)... even rebooted the PC and the DNS-323 but the problem remained until the end of the movie. No idea if they're related, but I do have two of the Seagate drives that appear to have bum firmware so I hope they're not about to go south on me... :-(