That's one seriously hacked setup. It's like someone went shopping and picked up whatever they could get the best price on, with no regards to the specifications/ratings and quality.
That portable compressor does not belong in a pneumatic HVAC system. Ideally you want a low speed 100% duty cycle rated belt driven compressor. Pneumatic systems are prone to leakage as they wear and age. You don't want a small leak in one part of the building to cause your compressor to trip out, taking out the HVAC in the whole building!
A properly spec'd, good quality compressor will also pay for itself eventually (if properly maintained). We have systems with DeVilbiss air compressors that have been going strong for nearly 30 years now.
said by Lurch77:
You do want to dry the air. Any moisture that gets out to the controls would be a bigger headache than what you're dealing with now.
I concur. Once water gets into the systems, things will eventually begin to behave erratically. The pneumatic thermostats, valves, etc, are designed to work with air, not water!