Which Airport to use for primary WiFi router, Express or Extreme?
If it works for you there's no need to change. I thought I'd read someone else say that you can't use the ethernet ports to extend from the wireless network on an airport extreme if it's in client mode but I gather you're only using it for wifi and it sounds like it's already working.

You can use 802.11n AE with time machine, from my experience I wouldn't recommend it though. The initial backup was expected to take ~20hrs and it kept restarting. In the end I plugged the HDD into my mac once a week to do a backup instead.