I am interested in improving download speeds which vary widely.
Your connection with your Internet Service Provider limits your speed. Your AirPort Extreme is much faster than your Internet service can provide.
I would like to upgrade my old Gen2 extreme to current one, but am concerned about EXACTLY how to do this.
It is not possible to upgrade since there were hardware changes that were made in different generations of the Airport Extreme.
Also I would like to change the channel but am reluctant to do ANYTHING with the extreme.
The AirPort Extreme will automatically choose the best available channel for you. If you change the channel manually, how do you know which channnel to use?
I am interested in improving download speeds which vary widely.
Minimize any obstructions in the signal path. Try for line of sight between the computer and AirPort Extreme. Move any cordless phones as far away as possible from the AirPort Extreme and your computer as well as other electronics like amplifiers, televisions, satellite receivers, etc.
This Apple Support Document will tell you more about Wireless Interference, which is likely the cause of your varying connection speeds:
http://support.apple.com/kb/HT1365