Unfortunately, EmbOS is embedded (as the name tells), so obviously it's made for one single specific configuration, so it always needs C: (Flash), D: (read-only) and E: (RAM). The original configuration maps D: write accesses to C:, so I assume you should be able to merge C: and D:, dunno about E:, maybe it's only specified in some configuration files.

The C64 emulator isn't of any use on normal PCs, so you might as well remove it. It's launched via a standard EXE, just replace that one with a small program that prints out a dialog box like "The emulator is not available on this Live CD." or so. All the interface stuff is stored as plain BMPs and configuration files as well, so you could grey the icon out or whatever.