newtothegame - Welcome to the forum
I got my HP-CS new back around June and have used it many times with no problem.
I thin my Model Master paints with much less thinner than you indicate. I use about two parts paint to one part thinner maximum. Paints like the MM buffable metallics and most acrylics spray just perfect right from the bottle. I have had to thin some acrylics, however, like the Color of Eagles brand yellow. For some reason it was just thicker, but adding a touch of water at a time brought it to spray well.
Try using plain old mineral spirits instead of the MM airbrush thinner. I've used MM's brand before and I think I get better results with the spirits. It's way cheaper, too.
I think your pressure is too high. I spray at 20 pounds or less. I start at 20 indicated on the regulator and then test spray a printed piece of cardboard (like a FedEx box) to see if I like the 'feel' of how it's spraying, then adjust the pressure until I'm satisfied. I've gotten to where I really don't have to look at the gauge anymore, since it is rather misleading sometimes, and because it's the same compressor I use at work (at higher pressures, like 120 lbs) I don't trust it to be all that accurate at the lower settings. Sometimes it may already be set too low at first, but again I just adjust it up until it works.
Always test spray on something before you commit to your model.
As for the aircap, mine never came with one, although my old Badger has one and the tip is definitely covered on that one. If you can see the needle move as you say, it has no aircap on it.
On the Iwata there are two front end pieces with knurled rings around them. The very front one is a protector to keep the needle from getting hurt. You should get exactly the same results with or without it on, but I always keep mine on.
The second front piece I have never had off after about fifty or more painting sessions. Maybe it's time for me to take a look in there, but it's still spraying like the day I bought it.
I've heard that bear air supply has a good staff of people who may help you if you give them a call. Check them out on www.bearair.com .
I'm sure that mikev and snoop will jump back in here with more, and you should really heed their advice, as they are way more experienced than I.
Before you try again you should give your brush a good cleaning with lacquer thinner, including removing the needle and thoroughly clean the bowl. Be careful reinserting the needle though. When I spray cleaning thinners through my brush I do crank up the pressure to about thirty or so to really blast the crud out.
Do a search on the forum for all the various aspects of airbrushing and you will find a wealth of info.
Hope this helps
Stinger