I've gone through the process again, to make sure I get the wording right.
I'm using Windows Vista Home Basic.
I say File --> New Catalog. Browse to the folder containing the photos, enter the name, and choose to create the catalog.
Lightroom shuts down and reopens with the message "The catalog at location "c:\X\name.lrcat" could not be found. Would you like to locate an existing catalog or use the default one?"
My options, as buttons are: Use Default Catalog, Choose a Different Catalog, or Exit.
Before selecting an option, I browsed to the location where I wanted to make the Catalog. There was a folder with the same name I entered, however, it was empty. No Additional "Preview Folder" nor the 3 files that are supposed to be created.
I selected "Choose a different Catalog" where it listed my default catalog location with no other choices. I had two options at this window as buttons "Choose a Different Catalog..." or "Create a New Catalog...". First I tried "Choose a different catalog, and browsed to the location again. The new folder was still empty.
I next chose "Create a New Catalog..." went to the same location, entered a different name, and everything was successfully created, and the catalog opened in Lightroom.
I am using an external hard drive for storage, however, the process is exactly the same, even on my primary C: drive.