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There should be no reason why that drive wont work.

I would let the Time Capsule Format the drive, by connecting the 3TB to the Time Capsule and archiving the current 1TB to the 3TB then replacing the drive internally if you so desire. this shall still see your sparsebundle which is what Time Machine is backing up to.
 
For my Basic Mac Mini Late 2012 I am thinking of either purchasing an Apple 2TB Time Capsule or go with an Apple Extreme Router with a WD 1TB External Drive. I presently have an Apple Express(2nd Generation) and a WD Passport 500GB.

I plan on storing some of my favorate DVD's on the External Drive.

Any thoughts on how I should go.
 
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The time capsule may have more robust disk management, it should support a better data rate, if thats important to you.
 
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