I just unplugged my linksys router, plugged in my timecapsule via ethernet to my mac pro, then set everything up. Allowed time machine to copy the data over, then switched my mac pro over to wireless when the large download was done.
so you didnt have to choose an option to "replace your current router"?
i would do what you did above, ie, just physically replace the old router with new.. its just the "easy instructions" i have been reading about are confusing me somewhat.. lol..
