Yes, Firewire 800 is more than twice as fast as USB2 so that's the way to go if possible. As for formatting, as you say you will be using it via a Mac only you will want to format it in HFS+ (also called Mac OS Extended [Journaled]). Assuming you know how to change your iTunes directory to the new 2TB drive so won't cover that. To format the new drive, go into your Applications folder, then in the Utilities sub-folder you will find an appllication called Disk Utility. In the left hand column highlight your new drive and then in the Partition tab you will have your formatting options - its very easy just click on the drop down box and choose Mac OS Extended (Journaled).
If you choose Mac OS Extended (Journaled) than yes, you will be able to back any information up to a Time Capsule using Time Machine. I don't remember having to do any hacks or a work around so it should just work out of the box automatically. Only word of warning would be that although the new Time Capsule tops out at 2TB it is quite expensive and includes a wireless router of course which you may not need. It is a great device however so if that doesn't bother you, it works very well if a little slow on the initial backup over wireless (even using 802.11n). You can get Time Machine to work with another external hard drive - but either way, yes you can do everything you want to do pretty easily.