Funny you should mention a cluster with multiple instances. That's something I've been tasked with investigating as part of a consolidation project, hence why it popped into my head.
Good point re: naming the folder.
No, it's something you do in the OS. In Disk Mgmt, instead of assigning a drive letter to a drive, you can mount it to a folder on an existing drive. So you see an extra folder on your C: drive, say, rather than seeing a D: drive. Note: only works with NTFS. Search for "mounting partitions" in Windows help. Works in Win2K & Win2K3.
MARCUS. Why dost thou laugh? It fits not with this hour.
TITUS. Why, I have not another tear to shed;
--Titus Andronicus, William Shakespeare