My guess would be that once you allow something other than C:, you're opening things up to running games off of all kinds of weird devices like external USB drives, flash sticks, weird legacy hardware, network drives. This makes the problem of streaming assets a lot more challenging. Some techniques, like mmap'ing resources in, might require a NTFS formatted drive.

Limiting you to running off the system drive sidesteps a lot of those problems, and lets you make certain assumptions (e.g. it's probably NTFS and reasonably fast).

Also, drives that are not C: tend to disappear and reappear relatively frequently. Having a launcher have to check and handle it semi-gracefully is not simple. If you make people keep things on C:, they are more likely to stick around.