How does an external hard drive compliment Time Capsule?

Hi, I am relatively new to iMac and time capsule. I am a novice computer and Mac user so things have to be simple. I have been reading a number of threads in the forums gleaning as much information as I can. Any thoughts or suggestions would be greatly appreciated.
My iMac is running OS 10.6.4 with a 313 GB HD and my time capsule is 500 GB. I purchased my first iMac 2 years ago. Shortly thereafter I decided that I needed to be backing up files that I have been creating and building especially my photos and music files so I purchased a time capsule which I have been using as an external hard drive not as a wireless router. It is hard wired to my Mac. I use another wireless network. I have used Time Machine a few times and it has worked well for me. So far this simple set up has met my needs.
Just recently I got two error messages, one that "Your startup disk is full." and "The disk containing your iPhoto library is running low on space.
While I was exploring my memory capacities and possible ways of freeing up space on my computer my Time Capsule croaked. Apparently all hardware has an expiry date. It has since been replaced under an extended warranty and the new one reinstalled. I have done a complete back of my hard drive and deleted some useless stuff on my computer's hard drive to create 17 free GB. I am pondering what further steps I should take to safeguard my data. I hopefully will be building a much more extensive photo library both in iPhoto and Aperture. I wonder whether I should be looking at an additional external hard drive which seems to be the easiest thing to do. My Time Capsule (500 GB) is not quite twice the size of my computer's hard drive. Maybe it is too soon to invest in an external hard drive seeing that it may have a shot life span such as my first Time Capsule did.
Does Time Machine only work with Time Capsule or will it work with other external hard drives? The folks at my Apple store tell me that Time Capsule can be used just to store data but I have heard otherwise in the forums. How would an additional external hard drive will work with Time Capsule? What is the difference is between USB and firewire? Is it possible to open files stored on the Time Capsule to see exactly what they are?
I do realize that Time Capsule only backs up new files and any changes so I wonder how long I can continue with this arrangement.

curious r wrote:
Does Time Machine only work with Time Capsule or will it work with other external hard drives?
Yes, Time Machine works with external HDs. That's how most folks back up. Connecting directly via USB or FireWire is much faster then Ethernet, but you're right -- all disk drives fail, sooner or later.
The folks at my Apple store tell me that Time Capsule can be used just to store data but I have heard otherwise in the forums.
It can be used for Time Machine backups and other things, but trying to use the same one for both presents problems, because of the way Time Machine works (filling-up all the available space before deleting the oldest backups) and the fact that you can't partition a Time Capsule's internal HD to separate your backups from the other data. Plus, you can't back up the other data.
How would an additional external hard drive will work with Time Capsule?
It won't extend the TC's internal HD -- backups can't "span" the two. In your setup, you'd be much better off connecting an external HD directly to your iMac. The advantage of a TC is, since it includes a wireless router, you can use it to make a wireless network and do backups wirelessly. That's what a lot of laptop owners do.
What is the difference is between USB and firewire?
FireWire is faster and more reliable for large amounts of data transfer. It also requires less use of your Mac's CPU, since the FireWire chipset does some of the work that your CPU has to do with USB.
Is it possible to open files stored on the Time Capsule to see exactly what they are?
Yes. Files you put there (other than Time Machine backups) are just like files on any other disk.
I do realize that Time Capsule only backs up new files and any changes so I wonder how long I can continue with this arrangement.
Yes, that's a concern. It varies greatly depending on how you use your Mac, but our general "rule of thumb" is that it needs 2-3 times the size of the data it's backing-up.
There's another consideration: Time Machine can back up FROM your internal HD and external HDs that are directly connected via USB or FireWire (if they're formatted for a Mac), but it cannot back up from any network drive, including a TC's internal HD or a USB drive connected to it. So if you move some data from your internal HD to an external HD connected to the TC, you'll need some other way to back it up.
Forgive me, but I'm not sure why you have a Time Capsule in your setup, if I understand it correctly. You have one iMac, no laptops or other computers, and you use a different router for your network, right?
Your best bet may be to get one external HD for the "overflow" of things you don't have room for on your iMac's internal HD, and another, much larger one, for Time Machine backups of both.
I'll press my luck here and also suggest yet another external HD, perhaps a portable, for "secondary" backups. With a portable, you can take it to a secure off-site location, such as your safe deposit box, workplace, relative's house, etc., and also be protected against fire, flood, theft, direct lightning strike on your power lines, etc. See #27 in [Time Machine - Frequently Asked Questions|http://web.me.com/pondini/Time_Machine/FAQ.html] for more.

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