This solution sorted out my problem and it works for this environment:
Windows NT 4.0 server with Pervasive.SQL 2000(i SP 4).

Bob Wirtz has replied (Re: temporary files when using ODBC cursor library)
to microsoft.public.data.odbc and this is what he wrote:

"I just learned that I was misinformed in a key piece of
information. Our client was working in NT which does not
create default TEMP and TMP environment variables for the
system. Once we had them create those variables we were
able to redirect the temporary file; the TMP variable is
the controlling factor."

Thanks to all who contributed to this. I have another
issue, this one in OLE and services, so I will be posting
in another area here."

The first paragraph says it all. However, I'm not sure which one of those
environment variables is controlling in this case. I was too lazy to find
out,
so I just created both of them and restarted the server.

----
Joni Tuoreniemi

Joni Tuoreniemi wrote:

Here's a few things that might help...
Goldstar Software Inc.
Building on Btrieve(R) for the Future(SM)
Bill Bach
BillBach (AT) goldstarsoftware (DOT) com
http://www.goldstarsoftware.com
*** Pervasive.SQL Service & Support Classes ***
Chicago: September 16-18: See our web site for details!


FYI: Where does Pervasive.SQL create temporary SQL sort files?
Description: Where does Pervasive.SQL create temporary SQL sort files?
Environment: Pervasive.SQL 2000 Windows NT
Solution: For Pervasive.SQL 2000 SP3, the temporary SQL file location is in
the same place as the data files.
For Pervasive.SQL 2000 SP2 and earlier, the temporary SQL file location is
determined by the TEMP environment variable. The TEMP method allowed changing
the SQL sort file location by setting the TEMP environment variable to the
location desired.
Published: September2001

FYI: How to determine or change the location of temporary sort files generated
by a SQL query using Pervasive.SQL V8
Description: How to determine or change the location of temporary sort files
generated by a SQL query using Pervasive.SQL V8
Environment: Pervasive.SQL V8 Windows NT/2000, psql3984
Solution: When the SRDE generates a temporary table in order to process a
given query, it creates the file in a location determined by the following
rules:
- First, the SRDE uses the path specified in the registry key string value
HKEY_LOCAL_MACHINE\SOFTWARE\ODBC\ODBC.INI\Pervasiv eEngineOptions\TempFileDirectory.

- If the registry entry is not defined, then the SRDE uses the path specified
in the TMP environment variable.
- If the TMP environment variable is not defined, then the SRDE uses the path
specified in the TEMP environment variable.
- If the TEMP environment variable is not defined, then the SRDE uses the
Windows directory for Windows NT/2000/XP systems. For Windows 98,it uses the
current DDF directory.
Based on the rules listed above, you may change the location for temporary
sort files created by the Pervasive.SQL V8 engine during a SQL query by
changing the value for the entry in the Registry, or by
creating or editing the System environment variables for TMP or TEMP.
NOTE: This information is valid for Pervasive.SQL V8. Pervasive.SQL 2000
uses a different method.
NOTE: The SRDE deletes all temporary files needed to process a query when it
has completed processing the query. If the query is a SELECT statement, then
the temporary files exist as long as the result set is active,
that is, until the result set is freed by the calling application.
Published: June 2003


DE - Setting the Temporary File Directory for Pervasive.SQL V8
Engine: Pervasive.SQL 8
Version: All
Platform: WGE/CSE

Issue:
I need to move the temp file directory (where temporary sort files are
located) from my data volume to a new location. How can this be done?

Resolution:
If you create a new key under
HKLM\Software\Microsoft\ODBC.INI\PervasiveEngineOp tions called
TempFileDirectory as a REG_SZ with the value of the directory you want,
Pervasive.SQL V8 will store its temp files in that directory.