First, which version of OS/2 are you installing to?
1] For whatever reason my config.sys file was not updated when I uninstalled V 1.1.0, the existing ISOFS related lines were unchanged and a backup config.sys was not created.
Did you check the WarpIn log file, to see why? From what you say, you probably moved ISOFS after installing it, so the recorded location would be wrong.
2] The WPI installer script insists on installing ISOFS to [boot drive]:\sys\bin and with no option to select an alternative location.
[boot drive]:\sys\bin is the correct location for ISOFS, on an ArcaOS system. Believe me, you don't want to change that. It will either make it impossible to do an UPDATE to ArcaOS, or the UPDATE will put ISOFS where it is supposed to be anyway.
As my boot drive is small (2Gb) I do not install extra software to it - end of WPI install; time to use WPIView to extract the needed files to the location I want.
Don't do it. First 2 GB should be plenty of space. Second ISOFS is not a large package, so it doesn't take up much room. ISOFS is an essential part of installing ArcaOS from a USB stick, or from a partition on the HDD. If it isn't where it is supposed to be, you could have problems later.