I don't think the problem has anything to do with what letter your hard-drive is currently assigned to, as on my computer, my system drive is assigned to E:\ and I have a supplemental drive assigned to F:\.
Now, I do know that iTunes and the various iPod Updaters will NEVER look at the C:\ drive to find your iPod, so, assuming that nothing else is assigned the C:\ drive on your computer, when you plug in something like an iPod or USB Mass Storage Device, it will probably be assigned C:\, and there is the problem--I had this problem myself, and the woefully lacking Apple support pages didn't help. Thankfully, I reached this conclusion myself eventually.
So, try re-assigning the iPod's letter in Administrative Options if you have that capability in Windows, or simply plug something ELSE in first--such as a USB Mass Storage Device (Jump Drive)--so that it is assigned C:\, and then plug in your iPod so it is assigned a different drive letter. I seriously doubt that, other than C:\, the iPod specifically does not work on certain drives. I know for a fact, at least, it works on G:\, which is where mine was bumped down to. I hope this helps.