Paasche H Aircap problem

From your description, it does sound as though there is a problem with the threading on the air cap.  I don't think, I've ever used my #3 tip.  For models, whether base coat or details, I just use the #1 tip and for varnishing display stands, I use the #5 tip.  On the other hand, since it is a new airbrush, you might as ask Paasch for a new air cap. 

I am installing it with the o-ring and I have tried cleaning out the threads but it is a new airbrush. When I attach it to the airbrush I can't turn it anymore and it leaves way to big of a gap more then the o-ring could compensate for. It must be something with the threading on it. I was reading on here anyway that everybody uses the number 1 needle mostly so i'm not gonna lose any sleep over it.

What do you mean "not screw on the airbrush completely"?  Are you installing it with the rubber o-ring?  Being threaded, there's no guarantee that the aircap will be absolutely tight when lined up so the tip fits throught it, hence the use of the o-ring to privide the air seal.  If you are installing it with the o-ring, there's no reason it should not properly snug up like the #1 and #5 tips, unless the threads on the #3 aircap are damaged.