I had to start the game from scratch a billion times before I finally found what works for me. Btw, I'm using Windows XP. This works for Vista too, I think.

What I did was to change the save folder to "C:\Resident Evil 2" (like what the above people said). This took some time because my com couldn't find the file. But if you press the Browse button a few more times you'll be able to change the save location.

After I changed the save folder, I followed the instructions found on capcom's website.
(http://shop.capcom.com/store/capcomus/Content/pbPage.CapcomSupport )

1. Right click on the Resident Evil 2 icon and bring up the game's properties

2. Select Compatibility and select "Run this program with compatibility with"

3. Then select Windows 98 and Win Me

Be advised that running or installing this game using the Windows Compatibility mode does not guarantee the game will run on your current operating system.

I hope this helped! Please let me know if it did.