I'm not "reorganizing" my data. We're talking about 50+ sites/apps. with their own directory structures that include source, among other things (media, PSDs, docs, etc). I can't just start moving those sites around on my hard drive (and i shouldn't have to!!!)
I've resolved the problem - and am posting it here for others...
Xampp's default httpd.conf has a very restrictive set of <Directory> vars.
Deny from all
This will block any pages that you try to serve outside of a specified vhost. For a production server, this is very safe. But since Xampp is a development environment (I would never use Xampp on a production web server, even the Xampp team themselves advises against it) - we can make some changes.
If you don't want to use vhosts, and simply want to work by changing the "DocumentRoot" variable, then change the whole <Directory> block to read:
Allow from all
#Deny from all
Notice I've commented out the "Order deny,allow" and "Deny from all" lines, and added a line to "Allow from all". This means Apache can server documents from anywhere on your hard drive.
Now, DocumentRoot can be set to any location on your machine.