Ok, that would confirm that AirPlay is not recognizing the Express so let's try setting it up again. I suggest that you first perform a 'factory default' reset on the Express. You do this by simply removing it from power. Then, using a paper clip or something similar, hold down the reset button on the Express while simultaneously reconnecting it to power. Wait until the status LED starts flashing amber rapidly, and then, let go of the reset button.
With this type of reset the Express will return to its 'out-of-the-box' configuration which is a wireless router that will broadcast an unsecured Wi-Fi network with a network name of something like: Apple Network NNNNNN.
You can then use the AirPort Utility to configure it as a wireless client for the purposes of streaming.
Once reconfigured, it would have joined your current Wi-Fi network provided by your Time Capsule (TC) ... and show up as a wireless client on the TC.
You can then try streaming again.