I feel compelled to share a small part of my own personal hobby, mainly because I know there are others out there in similar situations. Many of you are blessed greatly by the existence in your homes of a dedicated Hobby Room; I sadly am not so gifted. In fact, with 3 kids and a wife who hog the whole house, I have little room to myself.
My solution: entrench myself in the laundry room! For me, this is actually not such a bad thing as it's surprisingly quiet and the laundry machines get little (if any) use. Honey, if you're reading this, I'm just joking :)
I think the key for any hobbyist with limited space is to use it wisely... keep what you frequently use within arms reach (neatly organized mind you) and then find organized storage for the rest. Keeping your working surface clean will add to your enjoyment when you do finally sit down to paint or model for a little while... These are all my own opinions keep in mind.
In the space behind my laundry room door, I built in the basic framework of my hobby area and it wasn't expensive. I keep everything clean and out of the way and there is plenty of space for both laundry and hobbies.
My working surface is an inexpensive Formica counter top cut to fit my wall (I got this on clearance at Home Depot for $15); it is mounted on a basic steel frame that is anchored into the wall; caulking applied to give it a finished look. This allows me to place a cheap Ikea metal cabinet underneath on one side, and my airbrush compressor on the other; still affording plenty of leg space.
My paints are stored in some basic wood-trim shelves that I easily mounted and painted. Other Items like tools, paper towels, etc. are all stored near by. The framework for my shelving and baskets are all Closet-Maid wire shelves and accessories (again, pretty inexpensive).
Lastly, all my supplies are stored in matching baskets up on top of the shelving above my counter top... out of the way so that they don't clutter up my working surface. It's clear to see when you walk in, that it's my hobby space; but when I do finally sell my house, with the baskets and paints taken down, the area looks just like a laundry folding counter top and shelves.
I look forward to the day I'll have my own hobby room to claim... but for now, I'm pretty happy.