It should work fine if you install it into the default location.
You can however install Mathematica where-ever you want. The key is to make sure that the webmathematica configuration points to the kernel. Quoting the installation article:
"The most important setting is KernelExecutable, the location of the
Mathematica kernel. The MSPConfiguration.xml file that ships with
webMathematica contains settings suitable for a default installation
of Mathematica for Windows, Linux, and Mac OS X. However, if you
install Mathematica into a nondefault location, you will need to
modify this file. For example, if you installed Mathematica into
E:\Mathematica, make the following setting of KernelExecutable in
MSPConfiguration.xml.
<KernelExecutable> E:\Mathematica\MathKernel.exe </KernelExecutable>"
If you don't know the location of of the kernel executable, try evaluating this in Mathematica.
First[$CommandLine]
If you have trouble installing this, I would suggest contact Wolfram Technical Support.
