Time Capsule drive removal, reformat, and put in External NAS that supports time machine over SMB.

Plenty of people using Synology or QNAP NAS devices have an easy to enable option where you can define the disk to use and the Time Capsule emulation or whatever they call it. It starts broadcasting its presence. On a Mac on the same subnet you'll see the Time Capsule being advertised if you browse the Network. If you have the proper credentials you will be able to authenticate and setup a Time Machine backup. All you need to be is online on this same network and the backup will run. Recommend making Time Machine visible on the menu-bar icons as it makes it more noticeable if there is an error or problem with Time Machine backups.

System Settings > Control Center > Time Machine = Show in Menu Bar

I don't see why not, but the TC's hard disk is just a generic hard disk drive. Allegedly they are "server-grade" but they are all "old" at this point. None of mine have ever failed but considering the largest capacity TC ever built has a capacity of only 3 TB it just doesn't make sense to repurpose it.

Today you can buy twice that capacity for about $100. Lots of people have replaced their TC's HDD, but the reason was generally to upgrade its capacity, not to keep using an old drive.

What I don't understand is thinking it will save any money at all. You can buy any off the shelf bare hard disk and install it in any NAS device. None of them are likely to be able to read the HFS+ format required by the Apple AirPort Time Capsule.

Buy the Synology NAS if you wish but I'd keep using the TC until you can't any more. Besides, if that is your only backup device, it's not enough.