I'm a little shocked by how many people are on the "use tape and dope" bandwagon.
I'm unaware of any pipe sealant maker or teflon tape maker that would instruct you to do it that way.
So, my recommendation would be to use one or the other. To nail that down a bit, based on my experience it's easier to get leak free joints with a quality pipe sealant than it is with teflon tape. To be even more specific, I recommend Rectorseal #5 pipe sealant. Their instructions include stirring thoroughly, clean the threads, apply to male threads only up to 1 1/4". Apply to male and female if larger. I allow it to tack a bit (maybe 1 minute) but that isn't in the instructions. Assemble joint to ansi standards (hand tighten and then tighten another 2-3 turns). For pressures above 100 PSI allow to fully cure before pressurizing.
Oh...also if you haven't got your elbows, tees, and couplings yet....I'd recommend getting them at a plumbing supply store rather than a box store. Maybe they are better now, but I've seen some pretty jank fittings from my box store in the past.
So...personally...I did this in 2006 on my shop air system. It's still working great. I have not gotten the rust issue. That said....I do have an automatic tank drain on my compressor and another manual drain that I use regularly.
