Why doesn't time capsule come with AirPlay and an audio out plug? I have to buy an Airport Express station and put it right on top of my time capsule to wire it to my stereo. Doesn't make sense...

My Time Capsule is right by my stereo and would like to stream my itunes there. But it looks like I would have to add an Airport express station right on top of my time capsule to do this. Which doesn't make sense to have 2 wireless routers on top of each other. Is that the only way?

Well you can't do it with a Time Capsule.
You could get an Apple TV instead of an Air Port Express and then you can get video as well..

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