KSE looks in your registry to find the path to the installation folders for KotOR and TSL.
To permanent fix the problem you'll need to use regedit
KotOR : HKEY_LOCAL_MACHINE\Software\Bioware\SW\Kotor\Path
TSL: HKEY_LOCAL_MACHINE\Software\Bioware\Lucasarts\Koto r2\Path
To temporarily fix the problem just double click on the file called kse-readme.txt and read the instructions about "Manually specifying the installation path".
right click on main TSL node