I had a similar problem with a small bostitch oilless. Replaced nearly everything, and every time I put it back together it wouldn't build pressure, and would stop and some random psi. I finally figured out it was the unloader valve. $6 later, perfect working compressor. See if the unloader...
For the sides and top, a straight cut on drywall and a steady hand with a caulk gun is all you need. I wouldn't use drywall for the sill. That should be wood or stone.
Re: What type of drywall in attached garafe
For a garage, the cost of MR (XP) is generally insignificant. I'd go with the extra moisture/humidity protection.
14' x 3.5' is ~4,040 gallons, or ~33,700 lbs. The area of the pool would be 154 sq ft. That calculates out to ~219 lbs/sq ft.
Either way, I don't think it's a good idea without a structural engineer signing off on it.