There's three ways to do this that I can think of off the top of my head.
1. reinstall office 97 and outlook98 on the terminal server with the new homedrive letter.
2. edit the registry (I know you didn't what to hear that...)
3. use system policies configured so that the system policy file is only for the terminal server and make the user settings for users in the policy.
we had to do a combination of all three until we got it right. we use a different drive letter for home drives on terminal server than for normal use... we also use separate profiles for each user(one for terminal server & one for normal workstation use).
hope this helps..
paul