Good advice, DV. Whatever you do buy a
CAST IRON compressor. The aluminum ones just do not last. I have a 6HP, 60 gallon upright and it has been with me for over 10 years. Made by PUMA. Cast iron twin cylinder. Get at least 11 CFM (I think the PUMA is 14) for running air sanders,etc. They can be bought for around 5-600 bucks.
http://www.cumminstools.com/browse.cfm/4,65.html
Run 3/4 pipe, plumbing the garage with at least 4 outlets, with a quick disconnect at each outlet. Cheap insurance when two of you are working. Put a
good air dryer at a low point in the line. If you really want to get fancy, put a small refrigerated air dryer, like a Hankinson, about 10-20 feet from the compressor. I bought mine used for 100 bucks. Then, put small dryers on the end of each line just before the disconnects.
Keep at least 10 feet between the compressor and the dryer. If you don't, the air will be warm coming out of the dryer and can still form a small amount of condensation. Air cannot be too dry for painting. Any amount of moisture will show up.
If you want to
REALLY get fancy, bump out the garage and enclose it from the garage with an automatic drain valve. You cna't even hear it running.