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Thanks for the quick reply!
The SET command returned C:\ for both Variables. By looking at msinfo32.exe, I see many entries for both TEMP and TMP!
TEMP %SystemRoot%\TEMP <SYSTEM>
TEMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\SYSTEM
TEMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\LOCAL SERVICE
TEMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\NETWORK SERVICE
TEMP %USERPROFILE%\Local Settings\Temp EDGE\clearcase_albd
TEMP %USERPROFILE%\Local Settings\Temp EDGE\EFriedl
TEMP %USERPROFILE%\Local Settings\Temp EFRIEDL-DT\ASPNET
TMP %SystemRoot%\TEMP <SYSTEM>
TMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\SYSTEM
TMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\LOCAL SERVICE
TMP %USERPROFILE%\Local Settings\Temp NT AUTHORITY\NETWORK SERVICE
TMP %USERPROFILE%\Local Settings\Temp EDGE\clearcase_albd
TMP %USERPROFILE%\Local Settings\Temp EDGE\EFriedl
TMP %USERPROFILE%\Local Settings\Temp EFRIEDL-DT\ASPNET
Either one should divert away from my VOB (A:). Apparently, CSC doesn't care about these variables.

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What do you have for the Temp and Tmp environment variables? My guess is that that is where CSC determines where to create temporary files and that they are not set or are not set properly. To look at the environment variables, just go to a command prompt and type set and enter, or go to "Start | Run" and type msinfo32.exe and click Ok. Expand the Environment Variables node.
To modify temporary variables, go to Control Panel | System and then click on Advanced System Settings. Then in the Advanced tab click on the Environment Variables button at the lower right.