using a Time capsule with an existing router

I'm no expert at home networking, but your proposal sounds just like my setup. I pretty much have to use the wireless router that my ISP gave me (for various reasons), even though I'd much prefer to use my Time Capsule.

What I did was to turn off the wireless capability of the ISP router, and plug my TC into one of its ethernet ports. The TC is configured to "Create a wireless network", and my iMac is wired into a TC ethernet port. Also, the TC must be configured to "Bridge Mode". This way, the TC does not act as a DHCP server, and all devices get their local IP addresses from the ISP router. That way, all wired and wireless devices have IP addresses on the same local subnet.

I have a couple of port forwards. They must be set up on the ISP router (not on the TC) to forward to the local IP address of the desired computer.

So I get the wireless features from the TC but still have to deal with port forwarding on the ISP router, since it's "first in line". It's been working perfectly fine for a couple of years, though.

 

Short answer - yes

Better answer - there are TONS of threads that cover this topic thoroughly, so please search and read through. You will find detailed answers.

 

I just got a new TC and set it up today.

Yes you can do this. It's how I have it set up. The Time Capsule handles the setup flawlessly. It took me no more than 20 minutes to set it up. I'm actually kind of in shock - I've spent many an hour struggling with network hardware from other vendors, with simpler setups.

Regarding Port Forwarding... I don't know. My 360 and PS3 both show open NAT. I assume it's going through the router rather than TC.