I saw in the one photo in Bob's link that it was right about where the air tool went on, that makes sense, I seem to have trouble visualizing these things. Makes sense and I certainly will add it for that extra protection!
attaching a drier directly to the compressor usually does not collect much condensation - because the air passing through it is too warm for it to condense and be collected in the drier.
Inexpensive idea - which works - run a length of air hose out of compressor(with quick disconnects), lay on cool floor, attach to a dryer, attach final hose, attach to tool...
(for extended use - like for painting - I have had very good success running the hose out of the compressor 'coiled' in a 5 gal pail of ice water and the drier mounted just after that.)
For your intended use - just mount the drier away from the compressor and you will be golden..
ie.. air tool oil - a few drops in the tool regularly, but not enough to make a mess at the exhaust port..