How can I change the default location for database files that SQL creates?

A. Change/add the following registry keys :-

KEY: HKLMSoftwareMicrosoftMSSQLServerMSSQLServer
VALUE: DefaultData
VALUE: DefaultLog

Just put in a directory name (no trailing backslash) for these.

This works only for databases that you create with the CREATE DATABASE statement, not for databases created from Enterprise Manager.

(Answer courtesy of Kalen Delaney)