Not sure if this is your problem, I can't make that up out of your description, but if your game is installed in Program Files, and you have Vista or Windows 7, S3D must be run as administrator. But I don't think that is your problem, because I guess the virtualization feature would prevent errors such as those... (not that this is a good thing
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Try to use the mod creation feature in S3D "File > Save in mod". Pick an existing mod, or try to create a new mod. S3D will create the needed directory structure...