The flashing capslock LED is a kernel-has-crashed (aka "OOPS")
indicator.  It certainly looks like a bug in the microcode loader.

For the record: It is possible to bypass the microcode loader.  That
would allow you to test that it is indeed the microcode loader, or to
fix the system if you did not have a backup kernel/initramfs.

To bypass the microcode loader, inside the boot loader (grub), instead
of lauching the boot, you ask it to edit the boot config, scroll down to
the "kernel command line" (starts with "linux"), and add "dis_ucode_ldr"
(without the quotes).  Then you tell grub to proceed booting.

More details:
https://help.ubuntu.com/community/Grub2/Troubleshooting#Editing_the_GRUB_2_Menu_During_Boot

Anyway, it looks like this bug should be reassigned to the kernel.  You
will have to provide a lot more information for anyone to be able to
help you, though.

Relevant information: contents of /proc/cpuinfo, exactly what kernel is
crashing (32 bit? 64 bit? package version?), and if at all possible,
kernel logs when it crashes (boot in verbose mode to see).

Also could be of help if you want to provide more data (without which this bug 
cannot be solved):
https://wiki.ubuntu.com/DebuggingKernelBoot

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https://bugs.launchpad.net/bugs/1662097

Title:
  lenovo t500 kernel hangs with flashing caps lock LED after installing
  intel-microcode

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