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I think by adding "c:" to the "Create in folder" path it seems to work.

Does anyone know if there has been a fix or workaround for this problem?

https://www.adventuregamestudio.co.uk/forums/beginners-technical-questions/issue-starting-new-game-running-windows-xp-on-parallels/

I'm having a very basic problem with simply starting a new game. when I name my game/folder and click continue, I always get an error message that says, "The folder name you have specified includes some invalid characters.  Please just use letters and numbers." even though I have used just letters. I found an old forum describing the exact same problem here.