It's a standard address - c:\. Their server doesn't see it though (put c:\ into the address bar in IE and you'll see your drive as well).
That information is not transmitted back to their server. Just a little bit of Fear, Uncertainty and Doubt.
Doesn't work in Opera. I don't know about Netscape.
Edited to say that you can type c:\ into Opera and it will list your drive, but invoking it from a webpage doesn't work. Regardless, they see nothing. So unless you're running some kind of wide-open share, nobody's browsing your hard drive, and they're not using a trojan to get that effect.
They're right... a lot of stuff is stored on your hard drive and in your registry just from surfing the net. Those programs aren't a bad deal, if you get a good one. All they do is automatically delete your temporary internet files folder, your cookie cache, mru's and stuff like that. I don't know about this particular one... but when you come across a page that shows you what's on one of your drives like that, don't delete anything because it's actually your own Windows Explorer program called by this script to show up in Internet Explorer: