Holy crap, I didn't think Capello would go through with this. England needs Terry if they want a shot at a decent WC result... I'd imagine as it stands, demoting him from captain of the squad is enough of a punishment that the other players on the team can feel like justice was done and still play with him.
It would be absolutely bonkers if something happens and he's cut from the squad, but I just can't see that happening.
I do understand the argument, though... he slept with one of his teammate's woman and that really will affect the trust and comradeship that's needed to be a good captain.