Ha! success at last. Your post kept bouncing around in my head and I opened up the head again, and noticed what you were talking about, and it's such a measly simple little thing. very annoying. Here's a write up with detail for the next guy this happens to.
do not disconnect any hoses while doing this, and make sure it's unplugged!
open the head of the compressor (the red disc with six screws holding it to the cylinder)
be careful to not unseat the main gasket attached to the actual piston. doing so can cause the piston to come out of allignment. You will be working on the part that is now connected only by a hose, and not on any part of the main compressor.
On the underside of that red head you just took off there should be a silver portion with two screws holding it in place. there is a hole on one side that matches up with the piston, there should be a rubber stopper inside that hole that should be flush with the metal when the compressor is off. If you can see into the head through that hole, then it has become stuck and is not sealilng. The inside of this mechanism is just a spring and a rubber stopper. It is held in place by six metal posts, which catch the spring and bind it up, preventing it from closing. Had the makers put in a proper cylinder for it to travel in, it would never malfunction, but the posts are just perfect for catching the spring.
To free it up just stick the end of a toothpic, or the blunt end of a paint brush into the hole against the rubber stopper and compress the spring a little. It should pop free and close, flush with the metal disc. If this does not do it, open the head carefully by removing the two screws holding it in place. The metal disc is hard to get out, I used some tweezers and pulled it out by the hold, do this carefully so you dont damage the disc or the head it sits into. Now open you should be able to put the spring and stopper back in place (spring against the top of the head, the rubber stopper facing down towards the floor). Now put it back together, careful to not over tighten any screws. before you put the head back on, check the stopper with that toothpick again to make sure it travels properly and seals up on the cylinder. Now put the head back on the compressor, again, make sure the main piston gasket is seated right. Tighten screws in alternating pattern to be sure the head sits down evenly without torqing.
It should work fine.
Such a simple thing. I can't believe I missed it the first few times, I just assumed that the hole was meant to be open. Thanks shurgger for the help! Hope this write-up helps the rest of you guys!