I have a DE filter WITHOUT a separation tanks. I love the DE filtration quality. But a DE filter is a bit more work than a sand filter and will require a good deal of elbow grease at least once per year to tear down and clean out. Backwashing also requires you to add DE afterwards so it also poses an ongoing, but small, expense.
I would advise against a separation tank unless it is required by your county's pool code (some municipalities require separation tanks for DE). Separation tanks are just another piece of equipment hanging off your filter that can and will get gummed up over time. All it is is a tank with a nylon bag in it plumbed into your backwash line to capture DE and gunk from your filter when you backwash. The bag is disposable and has to be changed every few backwashes. It is not meant as a form of filtration so I would advise against dumping backwash water back into your pool as it will contain particulates, dead algae and foreign matter that the separation tank bag can not filter out. Normally you would plumb your backwash line into your sewer clear-out drain connection (if you have a municipal sewer connection at your house) that way all of the backwash goes down the drain. My equipment pad is not located near the sewer drain clear-out and so I discharge directly onto my property in a corner that drains out into an unused back lot and a part of the property that no one goes near. You need to be a bit careful with discharged DE because when it dries out it can become a dust and inhalation hazard so it should never be allowed to pool and build up on your property near where anyone might work or play. Many people substitute cellulose fiber for DE to avoid the dust hazard.
A sand filter is a fine choice for a pool. Many people on TFP have them and love them for their simplicity and ease-of-use. You can also add a little DE to sand filter to increase it's performance a bit. Another good option, if you can afford the biggest filter possible, is a cartridge filter. They are mid-way in performance between a sand and DE filter and require no backwashing. The only downside is you have to tear them down to clean them out but, if you get a big enough one, that could only be once or twice per year. In areas where water is expensive, a good cartridge filter can save you money by not using water for backwashing.
