Photoshop Elements needs contiguous hard drive space
to create a scratch disk. For this reason you should frequently
defragment your hard drive. Adobe recommends that you use a disk
tool utility to defragment your hard drive on a regular basis.
Choose Photoshop Elements >
Preferences > Performance.
Select the desired disks from the Scratch Disks menu
(you can assign up to four scratch disks), and click OK.
Restart Photoshop Elements for the change
to take effect.