I actually tried it on Thursday night and although I have the latest Time Capsule, my iMac is the 2012 model which means it only supports up to 802.11n.
I moved my Steam Folder onto the Time Capsule, set the Steam download library to that, and started running some games off of it. It's great to know it actually works but yes, it was pretty slow, given the fact I was running it wirelessly at 802.11n speeds. I did in fact run some semi-contemporary games such as L4D2, CS:GO, and Far Cry 2. Initial loading took several times longer but once the game was loaded, they played just fine, with just a short 2-3 second stutter or two throughout gameplay. I couldn't load L4D2 though because of some library loading error.
I'm very curious to try this out through the wired gigabit ethernet connection though and the speeds posted by Boyd look alright to me. At least they are several times faster than 802.11n. I just need to get a cable to try it out. I'll chime in with results later.
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It is mainly designed for backups and is not a full NAS. For what it does for the price point, it does it well.
I agree that its designed to be mainly a backup drive. However, I wonder still if by putting stress on the TC drive constantly (by running games for example), if that might have an impact on it's performance and longevity in the long run?
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You can do it, but for contemporary games and complex applications (such as Steam) you will probably find the performance unacceptable or not able to run at all.
And though I don't have one now, I used to have a Time Capsule. And as I remember it, whether wired or wireless, it had the slowest transfer speeds of any other NAS or file server system I've ever used. Currently, I use a Mac mini as a file server and I get around 108/90MBs R/W. As I recalled, Time Capsule performance was often less than a USB2 drive.
It isn't too far off from USB 2 speeds though is it? I've read some forums with people running games ok off of USB 2 external drives. But I wonder how modern those games are.
Anyway, if anything, this has been at least an interesting experiment.