This issue is likely as a result of trying to install and launch the game on different drives.

As a workaround,
1) you might like to try installing the game on the C: drive or :
2) follow the instruction from [Troubleshoot game installations on a Windows device | Xbox Support|https://support.xbox.com/en-US/help/games-apps/troubleshooting/troubleshoot-games-windows-10]

When installing a game from the Xbox app for Windows, you have the option to select the hard drive in which the content will be stored. If you see the “Selected drive is not set up to install games” message, it means your hard drive is not provisioned and installation access is denied. To fix this:

1. Open Settings on your device using one of the following options:
   • Select the link in the “Selected drive is not set up to install games” message
   • Select the Search icon on the taskbar, type settings, and then select it from the list
2. Select System > Storage, and then select Change where new content is saved under More storage settings (Windows 10) or Advanced storage settings (Windows 11).
3. Under New apps will be saved to, choose the drive to which you want to save the game content.