I did!
I built a plywood/ 2x4 box with some leftover fiberglass insulation to provide some soundproofing for my belt-driven compressor. I didn't install any bathroom fans for cooling, but then, I live in Seattle area where I have to heat my shop most of the year. I did install one of those cheap radio shack digital thermometers with a remote sensor so I can watch the temp inside the box. The highest temp I ever saw was around 80*F. Most of the time, unless you're doing some air-intensive work, your compressor will only run for about 2-3 minutes every hour. Cooling shouldn't be a problem. If you're doing air-intensive work, then just open the box door and deal with the noise.
The box reduces sound signifigantly! When the door to the box is open, the running compressor is definitely a conversation stopper! When closed, I can hold a conversation, listen to the radio, and think (not all at the same time though!)