Because ConfigMgr has to access the content of the drivers (parse through the .INF file, specifically), the drivers have to be accessible to the computer running the ConfigMgr provider. If we allowed local paths, it would have to be a local path on the ConfigMgr provider computer, which probably wouldn't make any sense, particularly if the provider is on the same computer as the ConfigMgr database. In the case of a site heirarchy, the driver content has to be accessible to the ConfigMgr provider on the child site so that it can copy the driver content to a child site Distribution Point when the driver is added to a Driver Package which was created on the child site.
This restriction of having to use a UNC path is something that applies to several of the new object types used by Operating System Deployment because of the need for the provider to read and parse the content. For example, the same is true for WIM files (Boot Images and Operating System Images) because the ConfigMgr provider has to parse the WIM header. For Operating Sytem Install Packages, the ConfigMgr provider needs to acces the content to determine properties such as the Operating System version and architecture.
Contributed by Michael Kelley