I got one of the mini regulators & filter from Machine Mart the other day:



However alot of air comes out the hole in the bottom, should there be a captive nut on the end to stop air leaking out?

There should be a plastic cap with a spring loaded pin which when under presure makes a seal. When the air pressure is off you can push the pin upwards to drain the water from the trap.
Looks like you have a bit missing