The patch checks the registry to find the install path, which should be listed under:
HKEY_LOCAL_MACHINE\Software\CDV Software Entertainment AG\Divine Divinity\English
Did you install the game manually, or install it under Windows XP / 2000 from an account without permission to modify the registry?
A registry file (from CDV's support) and description can be found in the topic;
Troubleshooting and Manual Install Procedure