I regularly backup (copy) the PSquarded folder on our server to an external drive on another networked PC (not NAS box) using xcopy. If I then change the Data and Audio file locations on a studio PC to point to the external drive, everything runs fine and the drive activity light confirms that the audio is being played from the external drive & not the server. However, if I shut the server down, Myriad (on the studio PC) stops working. The external drive is not connected to the server directly & still shows up in My Computer on the studio PC when the server is not running. What am I doing wrong? I suspect I need to change another file location in Myriad on the studio PC to look at the external drive, but I can't see anything.

You were dead right, runs no problem now.