I just ran into a simular problem where the a virtual drive letter is removed and I'm not be able to get the drive letter back resulting in a Windows installer error on drive E:\ when Alcohol 120% tries to load up.
This was an accident since I removed the AXV CD/ROM and SCSI/RAID Host Controller driver not knowing what it was for. When I put the drivers back in through Add/Remove Hardware in Win XP, they loaded up ok but no drive letter appeared in My Computer/Windows Explorer.
The AXV CD/ROM driver can't create its own drive letter. When Alcohol was first installed it has to bump a currently used physical CD/ROM drive down one letter and its own virual driver occupy the one above it.
In order to get my AXV CD/ROM drive letter back I had to:
Start Computer Management under Start/Administrative Tools
Open Disk Management folder
Right click and open Change Drive Letter and Path... from the pull down menu of any one of your physical CD/ROM drives
The current drive letter will be highlighted, click the change button and assign the drive letter that caused the error to the physical drive.
Keep hitting OK and leave Computer Management
Execute the application (Alcohol) and it will bump the physical drive down a letter and reassign the drvie letter that was causing the error back to the Virtual Drive.
Let me know if this works for you.