To give a little more detail, the reason why your -replace syntax didn't work is because you didn't match the configuration setting.
What you really want to do is sync the new site but change the virtual directory path for the site as you go. If you do a "msdeploy -verb:dump -source:apphostconfig=website1 -xml" you will the XML view of the source site. From that, you need to craft a replace rule which matches part of that source tree and changes it.
In this case, you'll want to change the virtualDirectory element, by changing the physicalPath attribute from d:\wwwroot\website1 to \\storage\blah.
So, the minimal replace rule should be:
-replace:objectName=virtualDirectory$,targetAttributeName=physicalPath,replace=\\storage\blah
Of course, this rule will replace EVERY virtualDirectory in the destination to point to \\storage\blah. If you want to simply replace the root virtualDirectory, you add a scopeAttributeName=path,scopeAttributeValue=/
The -replace mechansim is a swiss-army knife approach the aims for flexibility, but is difficult to grok and too flexible. That's why we added more common case -setParam types which allow for the common cases (like changing a virtual directory).
Hope that helped <g>