Open NAT Type with Dynamic IP?

I think you are confusing things.

The public IP is dynamic.. that is normal. And irrelevant.. You are not going to need a static public IP to get onto the internet.

In your main router.. whatever it is.. you need to set a static IP to the xbox.. this IP is private. You control it from the router.

So in apple airports you use dhcp reservation.

That means every time the xbox requests an address it gets that same IP..

You can then set that IP with port forwards or in DMZ .. whichever method works for you.

BUT everything is passed through NAT. That is what your problem is. And there is no way around it.

Apple routers are particularly unsuited to gaming consoles.. Your Xbox is designed to use upnp .. apple routers provide NAT-PMP which means you have a duck talking to a chicken.

I was told by my ISP that my modem is set to Dynamic and that my router should be set to Dynamic as well, is this true or are they bsing me?

Your ISP is correct. As LaPastenague has told you.....and it seems that you still do not understand.....the dynamic IP address from your ISP is irrelevant. It has nothing to do with the "private" IP address that is is assigned to your Xbox in the DMZ or Default Host setup.

The Time Capsule needs to be set to Connect Using = DHCP. The "D" stands for "Dynamic".

If you set the Time Capsule to Connect Using = Static IP, it might work for a few hours or so. But, since the IP address that your ISP is providing is "dynamic".....meaning that it will change.....you need to set the Time Capsule to Connect Using = DHCP......so that when the IP address from your ISP changes, the Time Capsule will automatically pick up the change and stay connected to the Internet.

If you setup the Time Capsule to Connect Using = Static, when the IP address address from the ISP changed, the Time Capsule would no longer be able to connect to the Internet.

Is there anyway I can open the necessary ports without a my router set to Static?

You do not need to "open necessary ports" if you have the Xbox set up in a DMZ (Apple calls this a Default Host). All ports are already open in a DMZ, so you cannot open ports that are already open.

Honestly, life would be much simpler for you if you got an Xbox approved router (the Apple routers are not) that uses UPnP to automatically open the correct ports that you need for the Xbox. The Apple routers do NOT support UPnP.

If your modem is also a router.. then the TC must be in bridge mode.. it has no consequence for the setup at all.. the TC is a dumb client.

You must not double NAT.. that will prevent you getting online with the Xbox.

If you need details give us exactly what modem you have.. And how the TC is setup and a few screenshots of that setup.. then we can tell you how to complete the setup for the xbox to get online.

I thought I needed my router to be set to Static in order to open all of the necessary ports/setup a local DMZ.

The only time that you would need a Static IP address from your ISP would be if you wanted to be able to access data on the TC hard drive from a remote location outside of your network over the Internet.....and you did not want to use Apple's Back to My Mac setup.

In other words, your TC is in Chicago, but you want to access data on the TC hard drive when you are in Los Angeles....or anywhere else in the world.

Did the DMZ or Default Host setup on the router produce the Moderate or Open NAT that the Xbox needs?