I have the exact same issue. It appears the MyDocuments folder is probably hard coded into the game and since it's looking for a specific path (c:\users\...) it doesn't know what to do and fails to create the folder.
For steam, I tried some switches on the launch commands:
-profiles=C:\foldername\Profiles
But no luck there. I had to do the same thing with Arma 2 so figured it was worth a shot.
The plus side is if you play a co-cop with someone, let them host it. You just need to create the profile and set video settings each time.
