This is the documentation and examples of the indexes.conf file. Create a new indexes.conf in $SPLUNK_HOME/etc/system/local (c:\program files\splunk\etc\system\local\indexes.conf). From here you can change the path location of the indexes.
I'm using Splunk 4.1. I finally found a setting in the General settings that allowed me to change the location. This not only created the folder but moved the contents from the previous folder. Very nice.
Thanks for your help, I think it may have be relevant to an earlier release.