To add to what Jake mention, I like to split the ArcGIS Server install between my C and D, keeping all the caches and output on D (although I have multiple output locations, including some one other server ---web if I remember correctly machines).
This is how I set our up (for an example....never hurts to get a look at how others do it)

EDIT: should have included this graphic too...

As for the Desktop, I keep that install on C, but have most of my MXD and FGDB on D (or elsewhere).