Using Time Capsule with existing Sky ADSL router
I asked the same question on the Apple forums, and got a solution that worked for me:

https://discussions.apple.com/message/20182532?ac_cid=op123456#20182532

I'll repeat it here so somebody else might find it useful in the future:

This is where you use a roaming network.

Do not extend.. that is much slower.. since you have ethernet and the TC plugged in you are 90% of the way there.

Use the TC to create a network.. with the same name and same passkey with security settings as the wireless downstairs. Locking channels is not a bad idea.. as this does require one difference .. the network upstairs must be on a different channel to the one downstairs.. then all will be hunky dorey.. !!