I found solution to this.
Reason is joint orientation, they all have to be the same as I understood.

1 Easiest solution that could hopefully help, is to detach skin trough skin>detach skin(keep history to keep custom smooth skin binding) then select all the joints and Skeleton>orient joint. Apply smooth skin again to the root or hips or whatever was original bone you attached.

2 However if skeleton is with constraint output and input element etc, Maya will crash.
Solution to that is to disconnected all the connections to any skeleton joint. This can be done be deleting history from skeleton hierarchy and deleting rest nodes as bind skin through window> Hypergraph:hierarchy. Then if every single joint is clean without any connections, orient joint can be applied. Whats left is to reatach skin.

Creating capsules bones/muscles should work now.