emulator: ERROR: unknown virtual device name: 'xxx'
emulator: could not find virtual device named 'xxx'

It’s because the Android emulator works a little differently from the rest of the SDK (the rest of the SDK is Java, emulator.exe is C/++). The rest of the SDK behaves correctly in terms of user home folder (I move mine to a different hard disk) and emulator.exe has it hardcoded (depending on your OS). In Windows 7 and Vista that means it ALWAYS looks in “C:\Users\<username>\.android”. The fix for this is simple (in a command prompt under Vista/Win7):

C:
cd C:\Users\<user name>
mklink /j .android <new home directory>\.android

Worked for me. Source: XDA Developers.