Hello there, y3bebekids.
Yes, that is possible. The folowing Knowledge Base article helps you cover all the bases on setting that up properly:
If you happen to be an iTunes for Windows user, follow the link at the very beginning of the above article to get to the right article for you.
- To move the iTunes Media folder on a Windows PC, see this article.
Thanks for reaching out to Apple Support Communities!
It is still the case that the TC cannot back itself up.. nor can Time Machine backup network drives. So think carefully if this is the ideal. You will need a third party backup application to start with.
It is also slow to respond and quick to spin down the disk so people have issues using TC for itunes. Do not be surprised if it constantly gives messages that it has lost the library.
The fact that something might be possible, does not mean that it is a smart thing to do.
Having tried this a number of times, I can say that LaPastenague is absolutely correct with his comments. A Time Capsule is designed for your backups....not for everyday files that you will be using regularly.
You will do much better if you add an external USB or FireWire drive to your computer and move the iTunes data there. Then things will happen much faster and a lot more reliably.
Then, you can use Time Machine to back up both your Mac and the external hard drive with the iTunes data on it, so you have backups of everything.