Airport extreme to extend time capsule range - performance degradation

I have a time capsule - had no wireless coverage on my patio. Installed an extreme base station as an extender and the good news is I now have coverage on my patio. Bad news is the performance in my office went from good to bad. Office had thruput of 5Mb per sec before installing the extender to around 300Kb per second after installing the extreme base station as an extender. When I unplug the extreme base station performance in the office goes back to good - 5Mb per second. Of course when I unplug extreme base station I lose coverage on the patio. I thought the network on my mac book pro would pick the transmitter with the strongest signal. When moving to the office I would restart the MACbook PRO to make sure it wasn't still using the same transmitter as when I moved to patio to office. The workaround is to leave the extender unplugged unless I am on the patio - an ugly kludge. Any insight help will be greatly appreciated.
Thanks,
Mike

Thanks for all your help and the explanations.
Not looking to beat a dead horse - everything is working to my satisfaction but but my head is spinning on some of this stuff.
Originally on the TC 'Radio Mode' was set to '802.11n (802.11b/g compatible)'.
I changed it to '802.11n only (5Ghz)'. That resolved my issues and I am very happy about that.
Per your post the iphone was not 802.11n capable and my poking around on GOOGLE seems to confirm that.
However, my iphone 3g looks like it is utilizing my wireless network. I see a fan icon vs. 3g icon. When I first take the iphone off sleep, the icon is 3g but it changes to the fan icon. I can confirm it is using my wireless network through an application. The app is IPOD keeper which syncs my passwords. It shows it is picking up an DHCP ip address and port number from my private wireless network. 192.168.2.xxx.
My wife has a first gen iphone and an Ipad - she is out of town and I can't test those devices. If the first gen iphone can't utilize the wireless network - no big deal - it's simply a phone for her. Hopefully the Ipad will work - that is a big deal for her.
I'm always trying to learn and appreciate your time and help.

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