This was a question popup about a year ago when the client SPS 2003 virtual directory is hosed on a drive other the default C:\Inetpub\wwwroot location.
It all began with a gradual migration, the new targeted web application for MOSS 2007/WSS 3.0 is created automatically at C:\Inetpub\wwwroot\VirtualDirectories\
while the SPS 2003 site is at E:\Inetpub\wwwroot. At that time, I only know to manually change the virtual directory physical path location in IIS manager after the targeted web application is created.
The method turns out to be not a “SharePoint configuration” but rather a “IIS configuration”. Not at all an experienced server/IIS administrator myself, I feel like his post is “good to know” and one of the gotcha situation 🙂