Can't help you with the 3GS problem, but I can confirm that I have my Time Capsule configured as an Access Point and it doing a very good job so far. I think I am right in saying that the TIme Capsule is the same as the Airport Base Station in this area.

Range is pretty good too, better than a bits of hardware I have tested here, nothing scientific just from using it etc...

No wall mount option though, just in case you needed hole in the bottom for that.

Cheers

Cris.