[CaptTom]

C4,
Let me throw my mechanical prowess at your question. A diesel fuel filter/separator unit not only separates the water from fuel, but does filter algae and foreign particles before they get into the fuel components (ie pumps, injectors). Water is separated and settles to the bottom of the fuel filter unit. The valve at the bottom of the filter is to let out that water. Since water is heavier it will settle at the bottom, in the bowl. The filter element's job is to stop foreign matter. Filters come in various sizes, usually measued in microns. The smaller the micron number, the finer the filter and thus the smaller the particles to get trapped. When you get algae or foreign duprey in the filter bowl, then it's time to change the element. Trapping matter is not just a by-product of separating water, it's one of the most crtical jobs of the filter. And if the filter gets clogged, your flow of clean fuel will stop and the engine stops. Fuel is not bypassed around the fuel filter like it is with an oil filter.
Now if you are talking about a fuel separator that does not contain an element (like the separators that spin the fuel so the water drops) then there should be a filter unit before to prevent the algae from getting to the separator.
I have seen filters that had no water but clogged by the dead algae (that's what you get when you use a biocide in the fuel, the algae dies and collects at the bottom of the tanks) and therefore shutdown the engines. One step to alleve this is to have the fuel "polished", or run through a series of filters to clean the fuel so you don't get significantly clogged filters. This is also good if you had to buy fuel from unknown sources, that may contain dirt or water. Some yachts have fuel polishing systems onboard, others call in a service from time to time and have the fuel polished at dock side.