BTW, I just upgraded from PS 6 to 7...if that makes any difference... They both pretty much say the same thing

LS

Photoshop implements it's own virtual memory (in addition to the one provided by Windows itself). This means that Photoshop needs to know which disk drives/partitions that it can use to store its memory paging file(s) (what it refers to as "scratch disks"). For best performance in PS, the scratch disk(s) should be on high capacity and high speed drives. However, it is not advisable to locate the PS paging file on the same physical disk drive as the one that Windows is using (because then Windows and PS will compete over disk access and this will impair the performance of the disk drive as it attempts to field IO requests for both Windows and PS). You can choose (up to 4) locations for PS to put it's paging files by using the menu option Edit->Preferences->Plug-ins & Scratch Disks. If you have two hard drives (C: and D:), for example, then Windows has very likely installed it's paging file on C: and, assuming you have space on D: then PS should be instructed to place it's file there. Of course, if you only have one drive/partition then you cannot really do much other than ignore the message. Scratch disks should always be fixed drives - removable media is generally too slow to be of any real use to PS.