Network attached storage advice

I am confused about network-attached storage and it would be great to get some advice. Specifically, what is the difference between hooking up a hard drive via USB to my Airport Extreme and NAS?

A Network Attached Storage (NAS) device is, in addition to having one or more hard drives, a basic computer that has its own operating system that allows for sharing those same drives on the network.

A "raw" hard drive does not have the additional features that a dedicated NAS device do.

When attaching a USB HDD to an AirPort Extreme Base Station (AEBS), the AEBS provides similar NAS functionality for this drive. That is, it provides a means to share out this drive to the network.

Currently, I have a USB hub connected to the USB port of my Airport Extreme and this hub serves three hard disks: two for Time Machine backups from two different Macs and one with an iTunes library that is shared between the two computers (the hard drive contains both the media and the actual library files). This setup works ok but I am wondering whether this is actually recommended or whether there are better solutions out there.

Unfortunately, Apple does NOT support using AirPort Disks (USB HDDs attached to an AEBS) for Time Machine backups. Although some folks have been successfull, most will find that their backups will become corrupted over time and I would highly recommend against doing so.

There are a number of options to consider to meet all of your networking requirements, but the one I would do more research on is a dedicated NAS box that supports both Time Machine backups and iTunes.

Is it correct to assume that the Airport Extreme does not have server capabilities, for example iTunes server?

That is not entirely correct. The AirPort Extreme DOES have provide a file server function. It includes support for both SMB (PC & Linux clients) and AFP (Mac clients) file sharing protocols ... so any of these clients should be able to access it for file sharing. It does not, as you mentioned, have a iTunes server function or support other server functions, like DNS, eMail, Web, etc.

Since I do have a lot of data (including iTunes music) on USB hard drives, is there a way to use them as NAS drives? Right now I have them hooked up to the Airport Extreme with a USB hub but I am not sure that this is a good solution (i.e. can the Airport Extreme handle the throughput?).

The bandwidth performance of HDDs via a USB Hub connected to the USB port on the Extreme will not be stellar. I just ran a quick test from my Mac Mini to an AirPort Disk & a old G4 Power Mac on my network performing as a file server. I created a 1 GB disk image file with Disk Utility, and then, copied this file to both locations. Each time, using OS X's Activity Monitor to take the readings ... and this is with the Mini connected to both via 1 Gig Ethernet. Activity Monitor is not 100% accurate, but I was getting a maximum of around 10 MBps for the AirDisk and 30 MBps for the server to give you an idea of the differences in throughput.

I do not have or tried either NAS device you have provided links for, but both appear to be reasonable solutions.