You would still need the compilers (at least the CSG program) to be on the same drive as where all the WAD files are (in this case somewhere in D:).
Now that there are two different locations for WAD files (for compiling vs for playing) make sure to have both versions up-to-date. [Not applicable if you're -wadinclude'ing the textures.]
* The issue is not really with how many WADs you loaded but with the total path length for all the WADs exceeding a limit. Having too many WAD files is the quickest way to exceed that limit.