In the early days the GUI has some issues with drive letters and funky directory names but they should all have been squashed. Are you using v0.13 and the Perl version of Mobi2Mobi or the Win32 binary version?
The GUI frontend is basically a glorified batch file builder so changing paths really shouldn't impact on its functionality. As the GUI relies on the .NET Framework the problem may be there somewhere. Have you done a Windows update recently?
A quick test to see what component is causing the problem is try the mobi2mobi file directly from the CMD prompt and see if you can process your book. If that works then the problem is with the GUI somewhere. Try creating a basic test directory in the root of C: a put a book file in there along with a copy of the mobi2mobi.exe or pl file. Point your GUI there and see if the problem occurs again. This will help eliminate any potential directory / drive problems.
Sorry for being a bit vague, but this is a bit of a weird problem. Let us know what you find.