A slave needs to have a directory dedicated to Hudson. Specify the absolute path of this work directory on the slave, such as '/var/hudson' or 'c:\hudson'. This should be a path local to the slave machine. There's no need for this path to be visible from the master, under normal circumstances.
Slaves do not maintain important data (other than active workspaces of projects last built on it), so you can possibly set the slave workspace to a temporary directory. The only downside of doing this is that you may lose the up-to-date workspace if the slave is turned off.