There is no problem in changing the location of outlook destination folder. You can change the location from C:\Documents and Settings\<user>\Local Settings\Application Data\Microsoft\Outlook to any drive (like D,E or of your choice). Follow four steps, this will guide you how to do this.

1. HOW TO CHANGE THE LOCATION
OF OUTLOOK DESTINATION
FOLDER

2. Step No. 1
Create a new delivery location for incoming mail. You have to do this in
order to keep Outlook happy.
• Temporarily disable Send & Receive before doing this if you want to be
able to delete the file in a few minutes. Otherwise your new emails will
accumulate here.
• Go to Tools > E-Mail Accounts… > View or change existing email
accounts.
At the bottom of the dialogue, where it says “Deliver new email to the
following location”, click on “New Outlook Data File” and create a new
delivery location. Name it whatever you want. I just used it as a temporary
placeholder to make Outlook happy, so I named it “Temp Location”.

3. Step No. 2
In the “Data Files…” dialogue (Tools > Options… > Mail Setup > Data
Files…), select the original .pst file. Click “Open Folder” to view the file in
Windows Explorer. Leave the Windows Explorer window alone for now
and click “Remove” in the Outlook Data Files window. This will take the
.pst file off of Outlook’s list but will not delete the actual file.

4. Step No. 3
Quit Outlook. In Windows Explorer, rename, move, or delete the
old .pst file. Just rename it or move it if you want to save a copy. Delete it
if you are sure you don’t want any of your old mail.

5. Step No. 4
Restart outlook. It will warn you that your original .pst file could not be
found. You will be provided with a dialogue window for locating or
creating one. In that dialogue, browse to wherever you want to keep your
.pst file and name it whatever you want. I just went to C:Documents and
Settings<user>Local SettingsApplication DataMicrosoftOutlook (the
location of the original file) and created a new file named outlook.pst. That
way, except for the backup copy of my old .pst file, everything looks
pretty much the same as it did before I tampered with it.