Yes, they are compatible. I have a 500GB drive hooked up to my AirPort extreme right now and it's recognized to work with TimeMachine.

Unfortunately I need to run my network in mixed mode, 2.4ghz Wireless N so transfers are much slower.

I believe so. Just make sure that the Airport Extreme is running at least version 7.3.1 of the firmware. I personally use an Extreme and a WD MyBook as my backup solution and while I wouldn't say it's fast I've never had issues where it wouldn't work.

see also: http://www.engadget.com/2008/03/19/time-machine-now-works-wi...