Copying Time Capsule Data to External Hard Drive

Is there any way to get TM to just use the archived data as the back up rather than creating a new data backup folder?

Apple used to offer this an option, but it was problematic. I don't think the option exists now. Even if it did, I would not use it.

Alternatively, is there a way of going into the archived file and deleting the duplicated files?

Apple does not support this. In theory, it might be possible to use the Finder to manually try to get into the backup files, but there is a very real risk of corrupting the entire backup file, since each file has complex links associated with other files. Personally, I would never try this unless I had another copy of all the backups. Even then, it's going to take forever to try to do this manually.

I plan to set up the new external hard drive as the back up drive to use with Time Machine. Can I expect that the new external hard drive back up files will upload to restore data on the iMac if I need?

Yes, backing up to an external hard drive connected directly to your Mac is the simplest, fastest and most reliable way to back up.

I'd like to be sure that my data is "safe" before I disconnect the TC and set up the new external hard drive.

I'm reading this as you plan to use the same external drive that contains the Archive of the "old" backups with your Mac and use Time Machine to back up the Mac going forward.

If this is the case, Time Machine will start a new complete backup of your Mac on the external drive and then move forward with "incremental" backups once the first complete backup is done. So, you will have two separate files on the external drive.......one file......the Archive that contains all the old backups......and another separate file with Time Machine backups going forward.

In other words, when you connect the external drive to your Mac, and set up Time Machine to back up to the external drive, Time Machine will back up everything on your Mac the first time that it runs. After that, Time Machine only backs up the changes that have occurred on your Mac since the last backup, so the subsequent "incremental" backups are not going to take up much space and will only take a few minutes.

You will probably never need the "old" Archived backups on the external drive, so after a few months of building up a new backup history of your Mac, you might decide to delete the old Archive file to create more storage space on the external drive.