I've never really thought about this curious holdover, but now that I do, it seems like it could continue either the old instrumental or the locative.Yes, I thought qui meaning "how" was an old instrumental, for instance. At any rate I believe I've read that somewhere, now maybe it was wrong and this is just an ablative...
The instrumental of o-stems is thought to have been formed on the e-grade (like the vocative) + (1st) laryngeal, resulting in a long vowel. We see it in adverbs like pláné (pretend those are macrons). The locative was either suffixed with the deictic particle -i, or left unmarked (these forms sprawl all over IE, in fact ModE 'home' is one of them). Both of these forms, if marked with the same particle that invades the nominative sg., would have yielded qui (that is < inst. *kwēi and loc. *kwoi ). My instinct says that it's probably locative, but "wat teh fuck" do I know?