I know it's possible to have an Airport Express create a wireless network by connecting it to my router (through enthernet cable).
But can it act as AirPlay at the same time?
Yes, that is in fact the purpose of the AirPlay feature. Just plug it to your stereo or active speaker with the jack on the rear. A small "airplay" icon (see the example on the Apple homepage) will appear appear in iTunes or iPhone/iPad when you play music. You can then select whether you want your music on the Airport Express router or on your computer / iDevice.