Don't get me wrong I checked all the possibilities. I went online to find out what was wrong. I bought the 3/8 hose 25ft long. The compressor can put out 4-6CFM and at first I thought that was the problem. But after some research I found that the majority of the reviews for this particular model have the same problem I had. They say that this gun can't put out the torque so they tried the heavier duty one that cost $129 and had no problem. This one its rated at 580 ft-lb.
Craftsman 1/2 Heavy Duty Impact Wrench: Find the Power at Sears
There is a link. I will try this gun and see if I get any results. If I don't then I can be sure that its the compressor.
And thanks for the trouble shoot check list skootnasty.