Change:
As per h3 rules, it's fine to send capsules without a setting. The setting is about the semantics of datagrams. Also remove the requirement to send the datagram transport parameter because we now have capsules.
I'm a bit confused about this one with the removal of the requirement. What purpose does the setting have now? Is it "I'm an endpoint that supports both H3 DATAGRAM frame and DATAGRAM capsule"? If so, using settings doesn't seem to gel well with the possible change of capsules to be conveyed in the datastream rather than in a CAPSULE frame.
Discussed offline and clarified. This spec defines the format of DATAGRAM frame or capsule. The SETTING helps articulate how the endpoint intends to consume things it receives. This might raise some interesting questions if someone tries to define a new formation the future. But they'll have to solve the problem they've made for themselves. This is fine as it is.
In section 6, it says "A value of 0 indicates that this mechanism is not supported." The draft actually has two mechanisms: the DATAGRAM frame and the CAPSULE frame. It would be useful to clarify that the parameter only refers to support for the DATAGRAM frame.

Discussion:
6. <del> Implementations of HTTP/3 that support this mechanism can indicate </del> <ins> Implementations of HTTP/3 that support HTTP Datagrams can indicate </ins> that to their peer by sending the H3_DATAGRAM SETTINGS parameter with a value of 1.  The value of the H3_DATAGRAM SETTINGS parameter MUST <del> be either 0 or 1.  A value of 0 indicates that this mechanism is not </del> <ins> be either 0 or 1.  A value of 0 indicates that HTTP Datagrams are not </ins> supported.  An endpoint that receives the H3_DATAGRAM SETTINGS parameter with a value that is neither 0 or 1 MUST terminate the connection with error H3_SETTINGS_ERROR. <del> An endpoint that sends the H3_DATAGRAM SETTINGS parameter with a value of 1 MUST send the max_datagram_frame_size QUIC Transport Parameter DGRAM.  An endpoint that receives the H3_DATAGRAM SETTINGS parameter with a value of 1 on a QUIC connection that did not also receive the max_datagram_frame_size QUIC Transport Parameter MUST terminate the connection with error H3_SETTINGS_ERROR. Endpoints MUST NOT send QUIC DATAGRAM frames nor HTTP/3 CAPSULE frames until they have both sent and received the H3_DATAGRAM SETTINGS parameter with a value of 1. </del> <ins> Endpoints MUST NOT send QUIC DATAGRAM frames nor DATAGRAM capsules until they have both sent and received the H3_DATAGRAM SETTINGS parameter with a value of 1. </ins> When clients use 0-RTT, they MAY store the value of the server's H3_DATAGRAM SETTINGS parameter.  Doing so allows the client to send <del> QUIC DATAGRAM frames and HTTP/3 CAPSULE frames in 0-RTT packets. When servers decide to accept 0-RTT data, they MUST send a H3_DATAGRAM SETTINGS parameter greater than or equal to the value they sent to the client in the connection where they sent them the </del> <ins> QUIC DATAGRAM frames and Datagram capsules in 0-RTT packets.  When servers decide to accept 0-RTT data, they MUST send a H3_DATAGRAM SETTINGS parameter greater than or equal to the value they sent to the client in the connection where they sent them the </ins> NewSessionTicket message.  If a client stores the value of the H3_DATAGRAM SETTINGS parameter with their 0-RTT state, they MUST validate that the new value of the H3_DATAGRAM SETTINGS parameter