That's the first I hear about this. I tested it on my computer and I think you may have a left over TSLRCM's installation in the default folder.
I ran the installer twice, and it wouldn't let me change the directory the first time. Then I uninstalled TSLRCM via the uninstaller exe (it's in KOTOR2 folder, called unins000 or so - but uninstalling TSLRCM from the control panel will work, too). Then I ran the installer again and it let me select a folder properly.
That's possible, and I'll test against that. I had a few users report the issue and I replicated it so I suspected it was the case, but it's possible it's only an issue for users who already have an installation.