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The problem though of passing TCHAR* as a parameter of the function is that the function does not know how much memory has been allocated so its possible to get the old problem of buffer over-run!...

Incidentially, as you seem to want to return a string - why are you just returing a character (TCHAR&)????? Shouldn't you be returning a pointer to a TCHAR array (TCHAR*) - and in your code use...

You seem to be returning a reference to a TCHAR (which is either a char or a WCHAR depending on UNICODE definition). This reference is either to the first char of szReturnedDir if everything OK or...