I have been using a shop vac as a dust collector for over a year, and found that it works fairly well with small woodworking machines such as the ones I own. However, I was recently made aware of the dangers that fine wood dust (smaller than 1 micron) presents to our health, and therefore decided to upgrade my shop vac filter to a HEPA-certified filter. Those filters are fairly cheap and can be purchased in most home centers. However, they are so fine that they have a tendency to clog very quickly, decreasing the suction very significantly! The solution is to use a separator in order to reduce the amount of dust and chips reaching the filter. Marc Spagnuolo aka The Wood Whisperer did a comparative review of several well known dust separators, and found that Oneida’s Dust Deputy was a great option. I followed his recommendation and bought that unit. I also made a cart, based on Asa Christiana’s blog article on the Fine Woodworking web site, to keep the shop vac and the Dust Deputy together as I move the rig around the shop. The total cost is around $100 US (in addition to the shop vac you probably already own) Not a bad deal when you think about it!
Note: If you use a shop vac as your primary dust collection system, make sure you use the largest size hose possible (2.5″ is a common size, at least in the US) and try to keep the hose as short as possible to avoid loosing too much suction.