If I may, I think the “approach” to the problem is not “the best”.
Installation of programs such as Avast should be done to the normal “programs” folder, usually in the system/boot drive C:.
You can change the “programs” folder location to another drive, but that’s for all programs, not just for Avast.
I doubt the 8GB C: drive is a problem with a “normal” XP installation. Several other issues might possibly be around. For example, is that 8GB disk also partitioned ( so C: doesn’t get all those 8GB)? Do you have a “Factory Restore” partition (do NOT delete it)?
Do you have “too many” programs installed?
It is “only” a netbook, so “too many” resource-hungry programs shouldn’t be installed anyway.
I would try to take out of the way “other things”, and let your antivirus (Avast or any other) to be installed “the traditional way”.
For example, do you have programs that could be used as “portable”? Those are easier to move to other locations.
Do you have documents/pictures/videos? Those are easier to move than “programs”.
Do you have older programs that you are not really using (or using once a year)? Can’t you uninstall them? Some portable alternative could be enough to have somewhere around for those “once a year” programs.
Do you use backups? Are those saved in “C:”? Change their destination location.
Do you use Restore points? They tend to use many resources (including space). The “real” use / usefulness of Restore points depends on the user, so I’m not able to suggest to stop their use or not.
In addition, if I think about the security aspect, I would tend to think that a drive that is so clearly “removable” (even by “accident”) is not the best option for a security tool. And even for any other non-portable tool, if you were to disconnect the removable disk, I would expect “a real mess” with all sort of problems (Windows would be looking for executable files, and some very frequently used folders, and they won’t be there).
Moreover, if the removable disk is not there in one boot, there is a chance the assigned drive letters would change (and that is, essentially, the first reason for Windows not liking the “removable” drive for software installations).
A “simpler” XP system should be fine with 8GB, so maybe you could try to get to that “simpler” situation.