https://bugs.winehq.org/show_bug.cgi?id=38114
--- Comment #14 from Rosanne DiMesio dimesio@earthlink.net --- (In reply to Nikolay Sivov from comment #13)
You have to make sure you have several partition, doesn't matter on same HDD or not. It allows you to create on Library per partition as I understand it. So if you have only C:, there's nothing to choose from.
I tested XP and 7 with a flash drive plugged in and recognized by Windows in both cases as E:. I was able to add a Steam library to that drive through Settings, and once I did, the dropdown menu did appear in the install dialog with that location as an option to install to.