Sorry to jump in now that you've got it working... BUT:
What's your error_reporting set to?
What's your session.save_path set to in PHP.ini? Does this directory exist? If so, does PHP have permission to write in it? If you look in this directory, do you see any session files in there? Does PHP have permission to read the files created there?
It shouldn't matter that PHP and Apache are installed on one drive and your website exists on another. The key is to make sure that your configuration files make sense for the setup you have.
Take care,
Nik
http://www.bigaction.org/