Yes, since VirtualInstall requires the Skyrim game root, it is the best to install it on the same drive.
Anyway when you use the multi-hd mode, you can save space by selecting the VirtualInstall folder to be on a different drive from the game's one, so you'll get all the heavy textures and meshes on it (but also keep in mind that if you put those files on a slow HD, then you could get slow downs while in game).
Problem is, there as some files that won't work using this system, or at least not for everyone (.esp, .esm, .exe and some other), that's why you'll need to setup that NMMLink folder that NMM will use as a container for all those files that needs to be located on the same hard-disk as the game.
Virtual Install should be set on the drive where you want the files to be physically installed (this must be on the same HD as the game (or better where mod files are usually installed), or anywhere if you use multiHD).
If you enable MultiHD mode, you must set the Link folder on the drive where the game is located (or better where the game's Data folder is located), you select a path, NMM will automatically add to it {GameName}/NMMLink