The Temporary Parse Path should be on the local processing machine. This location must be of sufficient size to hold the largest file that will be processed. However, over time, as more applications are loaded onto the workstation, this space may be reduced.
Keep in mind, particularly if the C: drive is used, that other applications may generate temporary files, and that the operating system will generate a memory file that could reduce the total amount of space available. All of these factors should be taken into account.
In general, if the temporary location is on the same drive as the operating system, 500MB of free space should be maintained at all times. If the machine is a database server as well, or running file services, at least 1 GB should be available.