Ah, this could definitely be a problem.
A) Is the environmental variable a system variable or user variable?
B) How is the network drive configured? Is it mapped by the user account? This will definitely not work with IIS. Can you change the path to use an UNC address instead of a mapped drive? What kind of permissions issues will arise with accessing the network drive from IIS? The IIS account is typically a local system account, not a domain account, so although you may be able to easily access the UNC path without additional credentials, you'll find that IIS will have all sorts of trouble.