Using time capsule as a shared iTunes library Is it possible to use a time capsule as a shared iTunes library? 

To be clear, by shared library I mean a library that all the computers running iTunes in the network would recognise as a shared library and not merely a shared location to be configured in iTunes.
No, the Time Capsule doesn't have the software to run an iTunes library. 

It can be used as external storage as you mentioned configuring it as a shared location. In this case iTunes would be running on another computer rather than on the Time Capsule.