1. I plan to put the Time Capsule next to the modem in a closet is the center of the house, do you see any problems?
Ideally, you would want to avoid any obstructions between the Time Capsule and any connected WiFi devices as much as possible, since obstructions will slow down and weaken the wireless signal. But, if you can get good enough coverage with the Time Capsule located where it is, then that may be OK.
In some cases, two wireless routers in close proximity that are both providing a WiFi signal can create possible interference effects that will hurt the performance of both networks. Try to separate the AT&T modem/router and the Time Capsule by at least a few feet to help minimize the potential issue.
2. for some reason I thought that the time capsule would replace the AT&T network, but it did not. The old AT&T WIFI network is still available with the new Time Capsule WIFI network.
This is normal. Remember that we said that the Time Capsule would be added to your current AT&T setup and the AT&T system would not be changed in any way.
If you don't want to have two devices both broadcasting a WiFi signal, the WiFi function of the AT&T modem/router can likely be turned off, but that would be a question for AT&T support. Some users designate the Time Capsule WiFi as their "private" network and use the other WiFi network for "guests". That way, you don't have to give out the password for your Time Capsule WiFi to guests.