While experimenting with cofs, I made the following mistake:
# --- config start ---
# There is no need to bother creating an ISO-9660 image
# for the installation CD-ROM, we can directly point to
# the files downloaded from slackware.at thanks to cofs.
# --- config end ---
The mistake is the space left after the equal sign in the cofs0 line.
coLinux parses this config file as if "cofs0=" was on a line by itself, and then independantly parses C:\Linux\... (being an unknown entity, it is passed as-is to the Linux kernel command line).
The cofs path being empty, is considered a path relative to the configuration file location, so we end up with cofs0 directly pointing to the configuration directory. (A somewhat dangerous configuration I would say, since it also often contains the filesystem images.)
Maybe the parser should be improved so that it ignores the whitespace characters right before and after the first equal sign in the configuration file lines? At least a warning should be added to colinux-daemon.txt.