Wouldn't the paint have to start at a one foot spacing in order to maintain that distance as they slow down?
No. Because the paintball in front of another one is always going to be traveling slower than the one behind it as it slows down, the gap will always be getting smaller and smaller between the paintballs as they lose speed. Remember, for every time interval the paintball is in the air, it is slowing down. Since the paintballs behind it haven't been in the air as long, they won't be as slow. This is repeated for every single paintball in the lane, so the overall effect is a condensing of the paintballs as they slow down.