I would like to use older Airport Extreme as an AP

This is one of those times where although something might be possible....it does not imply that you should do it.

Using WDS settings for both the Time Capsule and and AirPort Extreme.....it is possible to configure the devices together....but the downsides far outweigh the upsides.

Upside....you will have a bit more wireless coverage

Downsides.....

• WDS operates only in "g" wireless mode, so you give up probably 75% of the faster speed capability of the Time Capsule. The entire network will run much, much slower.
• WDS is quite difficult for most users to configure....check the link at the bottom of this post and you will see what I mean....it is easy to make a mistake and hard to recover without starting all over again.

My recommendation....wise to pass on this idea....or use an Ethernet connection between the Time Capsule and AirPort Extreme to keep the performance of the network from dropping like a rock with WDS.

But if you decide to do it anyway....Apple's instructions are here:

http://support.apple.com/kb/HT4262

If you are doing this purely to get internet access then G wireless maybe sufficient.. for doing backups to the TC I would definitely agree with Bob. it is too slow. You can buy an Airport Express.. not to expensive as a repeater, or you can get Ethernet over Power EoP adapters.. although I see a few posts of people having issues with these.

As far as WDS setup goes, let me suggest a cheap addition.. buy another A1034 from ebay.. They are like $10 here.. I recently got a couple to create a wireless bridge purely for internet access. Set up the first one plugged into the TC by ethernet in bridge.. and turn on wds with this one as base.. setup wireless name and password.. but make sure security is set to wpa2 personal.. not wpa/wpa2.. that is the bit that took me ages to work out. It simply doesn't work on wpa/wpa2 as it cannot make up its mind. Lock the wireless channel is also essential.. and use a different wireless name and channel to the TC.

Set up the second one as WDS remote.. use the same wireless name and security. You might need to restart them both to make them wake up.. once I got the setup going, it was solid and reliable.. in the airport utility you can open both airports at once and go to the advanced log wireless clients.. and see clients and speed of the network at both ends. For a box released in 2005.. it works extremely well with full wpa2 security.. and for $20 +pp you can build a great wireless bridge albeit only 54g. Plus WDS keeps the ethernet ports active.. unlike Apple's later repeater setup where the ports are turned off.. only you are stuck having a single port.

I found this blog post helpful.

http://www.borrigan.com/itprojects/hello-world/

Absolutely as Bob says.. this is a pain to setup because of the WPA2 security thing.. people miss that.. as does that post. And I used a straight bridge for the main wds.. that makes the whole thing a pick up and plug into any router setup. The first base will get IP from the main router.. when the WDS is created the second base will also get IP from the main router.. then all the clients will.

My advice would be to sell the older unit or use it for something else like Airplay to stream music from you computers or wireless mobil devices to your stereo or powered speakers.

Buy a new "n" model Express to extend your network wirelessly.