Steven,
The recent interest in GS's rule has led to a lot of imprecision and misunderstanding of his orginal articule and the restrictions that he set forth with his rule, which has stood both the tests of time and scrutiny. I would highly suggest you find his original article and read it. Wallace complains that most of the grammars that American students have studied under, including the venerable Dana-Mantey grammar, have done some injustice on this rule, by "neglecting to specify more clearly the limitations." (WGG, 273) You are correct that in the GS construction requires that there are three very important limitations - the substantives must be non-plural, they must be impersonal, and they must not be proper names.
GS would be more like saying, "This is THE worship center AND sanctuary of our church." The two substantives are obviously referring to the same thing.
Perhaps a better way to understand this passage (Although GOOD teachers DO disagree) is when you have a construction formed by the prep-substantive-conj-substantive, it is meant as two separate entities working together as a unit. Thus, these two units are working together somehow toward being born again/from above. So the question isn't solved by grammar, but by lexical and exegetical considerations.
It is significant that the article does not appear with the term pneumatos, meaning that it is not necessarily a direct reference to the Holy Spirit, but both water and wind are well-known figures that represent the life giving regeneration of the Spirit (the whole point of the conversation). This is found specifically in Ez. 37.9-10 and Is. 44.3-5. Thus, these two figures are being used as a unit to describe the Spirit's giving life, the fulfillment of OT passages such as those mentioned above. Nicodemus, a teacher of Israel, should have known this.
Thus, the idea that this is referring to water baptism is highly unlikely. It simply doesn't work in the context of the conversation with Nicodemus. In fact, notice that this phrase is given in contrast to Nicodemus' question, "He cannot ENTER a second time into his mother's womb..." Nicodemus simply cannot shake the idea of effort for salvation. To make "water" referring to water baptism would completely miss the point of the conversation.
See the NET Bible's article on this point. I hope this helps.
Randy