The fuel/water separator is actually the fuel filter. As you are looking at the engine from the front of the car it is on the left hand side. It is silver/aluminum in color. There are four hoses connecting the filter from the top. Two are attached to a tee and one is an inlet and an outlet attached to the fuel filter itself. There is a video on this site that will show you how to replace the fuel filter.
My suggestion...if you are going to remove the fuel filter to remove the water you mind as well just replace the filter. If I remember correctly the stock filter is good for 20,000 miles. You may want to consider "upgrading" to a CAT fuel filter. I have one on my '04 PD Jetta wagon and many others on the forum has it too. Not only will it filter the fuel better but it also will last a little longer. I'm going to change my filter at 50,000 but may just change it once a year b/c it only cost $15 as compared to a $36 VW fuel filter.