but, like the Gemini, the window for safely using those seats was pretty small. The seats were later removed because they took up too much space in the cabin when the goal was to carry more crewmembers. Also, those crewmembers in the lower area would not have been able to have an ejection seat and it would seem rather cowardly if the pilots punched out leaving the others to die.

Making the entire crew compartment into an escape capsule would be difficult. It's pretty big, so you'd need a hefty rocket motor to get it clear of the Shuttle. It'd also need stabilization devices, parachutes, and probably some air bags to cushion the impact. All of that would weigh several thousand pounds, assuming there is physical space in the Shuttle to mount all of this stuff.

Ejection capsules have been tried several times in aviation history with mixed results. The B-1A bomber prototypes had ejection capsules. When one of them crashed during flight test, the capsule worked only partially. At least one of the flight test crew was killed (I think it was two men). The production B-1Bs all had ejection seats instead. The B-58 Hustler had small ejection capsules for all three crew members. I don't know how well they worked in practice. The ejection capsule on the XB-70 didn't work all that well when one of the planes was destroyed in a mid-air. The only production plane made in the US to feature ejection capsules was the F-111. It worked at least some of the time - I used to work with a former F-111 pilot who survived a punch out. He said the rescue guys like the capsules because it made it easier to find the bodies.

Could Ejection Seats Have Saved the Columbia Astronauts?