I have the same problem. XP Pro SP-1, I have A:, D:, and H: drives. A is floppy, D is CD-RW, H is system. If I insert a CD, the application runs normally and defaults to displaying the contents of D.
How did you managed not to have C: drive? I want to simulate this kind of configuration to fix the bug, but I do not know how.
Well, I was setting up a new machine for testing. First I installed QNX, then Sun Java Desktop System, then XP. XP automatically created/chose H:, probably becasue of all the partitions. You can probably change your drive letter by going into Computer Management/Disk Management. This may not have the same effect. Make sure you backup your system first.
I also found another workaround yesteday. I was unable to install Symanted AV on my XP partition. One of their articles recommened using the SUBST command.
I opened a command window and typed this in "subst c: h:/", and that fixed my Symantec and WinSCP problem.