Despite the small changes I made it didn't help. It still idles a little rough and on the first start fires up for a sec then dies. Based on my knowledge it's an air intrusion happening somewhere. What are some of the main causes of this? I'm going to try bypassing the water separator with a straight connector probably today or tomorrow and see if that helps.
I like to think of air intrusion in two categories:
1. Fuel drainback. This happens becsuse of a back check valve in the stock fuel header or a tiny pinhole leak that lets the fuel in the filter drain back to the tank. Causes hard/no start in the mornings like you mentioned. Especially the "starts, dies, hard to start again" thing. (This is just a type of air intrusion, but different symptoms because it's on the return side)
2. Air intrusion. This is on the supply side, somehow air bubbles are getting into the IP and it runs poorly at idle and tends to go WOT under load because the timing is all goofy from the IP housing pressure going all over the place with air.
Fixing that fuel heater is a great start! Other common spots are:
1. Tank selector valve(can leak at connectors or internally)
2. At the tank quick-connects(turns out there are little o-rings that can get sketchy inside the female end)
3. Anywhere along the hard line can rub through if it's been touching frame or other hard metal. Not too common unless salt belt.
4. Anywhere there is soft line that wasn't fuel rated or somehow got a rub/cut in it.
I personally have deleted the stock fuel filter setup, but before I did I had a leak at the fuel heater. It let air in over night and took me a long time to find. Eventually I tapped a pipe plug into the spot where the heater was and used JB Weld, worked well.
I've experienced the air intrusion from especially my midship tank when I have WMO mixed in it in the winter. That took me a while to figure out, too, and I've yet to fix the darn thing.
Another thing that's very helpful is to either delete the return line from the filter to #1 or even better, install a proper check valve between filter and #1 return. (The stock one generally stinks.) We install the valve so fuel can flow away from the filter. The reason it helps is that check valves take about 2psi to open so your fuel pump will still drive air out but it won't let air back up the line overnight causing the fuel drainback issue.
Just deleting the line is fine and was a TSB by Ford, but makes for hard starts when you stitch tanks late or run out of fuel and need to re-prime. Been there, done that!
Hope that helps,
Joshua