Yes you would need to erase the former Time Machine drive and you could use either MacOS Extended or APFS. (Don’t worry about reverting to using it for Time Machine you would want to erase/reformat it again anyway.) MacOS Extended would be a touch faster than APFS, but APFS is so much more flexible because of its ability to add and delete volumes quickly and easily and although the total storage of all APFS volumes cannot exceed the capacity of the drive, any single APFS volume may use the entire capacity of the drive. Ie. APFS volumes can grow or shrink as needed.
It sounds as if you have arrived at a functional work around.
