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Is there any downside to installing a windows service on the D:\ drive rather than the C:\ drive?

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Yes, but only if you are worried about security/permissions.

The default filesystem level security settings for a non-system drive are slightly different from those on the system drive.
That might (in some cases) either affect the way the service interacts with the rest of the OS or give other users unwanted access to the files that go with the service.

There is not really anything technically against it from a pure software perspective. It is quite common to install application software (including the services) on another drive than C:.

Software that has specific security demands in this regard will usually, during install, set the filesystem properties to be right for the application and it's services.

So usually it is no problem at all.

Do make sure that D: is not a removable drive ! Not only because of the obvious risk of it being ejected while in use; being removable causes Windows to configure the permissions slightly differently again, but in a different way, and this can seriously mess up an application.
I found that out the hard way with a WSUS installation on a D: drive. (See this on Serverfault: https://serverfault.com/questions/504064/wsus-cant-download-anything-unclear-why)

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The only downside is of course if the D: drive fails.

Of note, the D: drive should be a standard fixed disk (and not a network or USB drive) for this to work reliability and problem free.

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