First of all, get the BIGGEST CFM compressor you can afford. I doesn't have to be a 2 stage unit, as your working pressures will be below 90 psi all of the time. A bigger tank will limit cycling, so too will the higher pressures of the 2 stage unit.

Jim Geo offered this advice that is all good:
OK I’ve had to deal with this stuff for almost 30 years. So here goes. Starting with the Physics of what is happening. Free air contains water vapor we all know it as humidity. Anyone that has placed their hand on a compressor while it’s running or shortly after knows they get hot, VERY hot. This happens because when you start mashing air molecules together the space between the molecules becomes smaller and they begin to collide. That causes heat caused by friction. The act of compressing air does not cause water to condense in our tanks in fact it encourages water to stay put as a vapor. When compressed air is stored in a bottle it contains energy because we have in fact added energy to it. One way of looking at is that we change the form of the electricity from the wall plug and it is now stored as wind energy in our tank. When we open the valve releasing the air to a standard atmosphere the compressed air looses energy that energy loss is in the form of heat loss, thereby encouraging water to condense and form water droplets. If we were able to stand inside our pressure vessel we could watch a cloud form around us as the pressure dropped. This pressure drop is exactly how refrigeration happens in our kitchens.
Dealing with the water that forms is always a problem. My solution is this. I hate draining my tank so I remove the drain valve and make that my main tank air line connection. I regulate my air pressure with a wall mounted regulator but that’s another story. My main air line runs into about 20’ of half inch copper tube that is coiled in a 55 gallon drum filled with water this is otherwise known as a condenser. After that the air goes through a centrifugal water trap. I empty that trap at least once a month during the winter and once a week during the summer. Using this system I never forget to purge my pressure tank since it automatically happens every time I use a tool. My air stays amazingly dry. I also use U bends equip with drain valves at my hose connections. I rarely get any water from my hose connection sites unless I have forgotten to drain my centrifugal water trap. One thing to note is a little water in your tools isn’t going to kill them but a little bit of water in your spray gun is going to wreck an otherwise great paint job.
Basically, you will have water in the line whenever you compress air. The water condenses when the air becomes hot from compression.
This is why I got a 60 gallon compressor. When I paint, I leave the compressor off and use the cool air in the the tank for my painting job.
If you place a good sized coil between the tank and your water separator it will serve as a heat exchanger. This should be fairly large. A few sections of baseboard heat will work quite well. This will cool the air, separate the water from the air, be trapped in the water collector and be nice and dry at your point of use.
The next thing you will need is a FRL Setup. This is a filter/regulator/lubricator... and the lubricator is optional.

Mine feeds from the right and distributes to the left.
Going from right to left we have a UNION right after the globe valve. This allows me to remove the connection easily, should I need to. A flexible connection is preferred here, as the machine vibrates and what not.

This flexi connection ties into my distribution lines.

I have a dirt leg with a ball valve directly below the perpendicular feed to blow off any water (yes, it does collect there!) and schmeg before it enters the distrib. system.
This is all mounted on electrical "Minerallac Clips" available from HFD (ya, I know you call it that too!) or Lowes. Space them off the wall with short stubs of PVC and long toggle bolts.
The first thing you need to attach is the filter/water seperator. I went with all 1/2" devices, but 3/8" and 1/4" are fine, depending on your needs. From there, nipple over to a regulator. I recommend a "T" after the regulator, so you can now tap off for painting.
You can see the paint tap and ball valve there on mine.
Next:

...is another ball valve with the lubricator portion. When I am painting, I normally leave this closed just to prevent any bad JU-JU from happening. the second regulator is for my low pressure tools. The large 3/8" line going through the wall is my "HI-Pressure coil" mounted on the other side of the wall.

The "LO-Pressure one ends up under my bench like this:


For the LO-Pressure stuff, I use this 90 PSI hose from HFD with press on connectors:

Looks like I have a leak there!
Oh well, not a biggie!
The paint booth stuff looks like this:

When I drain the tank, I use these little parts trays and it pees into them like a drug test!


It works for me!!!
Hope this helps you!!!
