How to disable Cash On Delivery on specific product type

You can do this by Magento Event/Observer

First,using payment_method_is_active disable on depends current quote product type.

Code for this:

Module config.xml code:

<global>
    <events>
    <payment_method_is_active>
        <observers>
            <paymentfilter_payment_method_is_active>
            <type>singleton</type>
            <class>yourmodel/observer</class>
            <method>filterpaymentmethod</method>
            </paymentfilter_payment_method_is_active>
        </observers>
    </payment_method_is_active>
    </events>
</global>

Observer code is:

<?php

class YOURNANESPACE_YOURMODULE_Model_Observer {

    public function filterpaymentmethod(Varien_Event_Observer $observer) {
        /* call get payment method */
        $method = $observer->getEvent()->getMethodInstance();

        /*   get  Quote  */
        $quote = $observer->getEvent()->getQuote();

        $result = $observer->getEvent()->getResult();
        if (empty($quote) || (null === $quote)) {
            return $this;
        }

        /* Disable Your payment method for   adminStore */
        if ($method->getCode() == 'YOUR_PAYMENT_METHOD_CODE') {
            foreach ($quote->getAllItems() as $item) {
                // get Cart item product Type //
                if ($item->getProductType() == 'YourProductType'):
                    $result->isAvailable = false;
                endif;
            }
        }
    }

}

for that you need to use magento payment_method_is_active event

I am assuming you know how to develop magento extension[If not then please check this answer you get whole module Write this code in your config.xml from app>code>codepool>namespace>package>etc

<global>
    ...
    <events>
        <payment_method_is_active>
            <observers>
                <paymentfilter_payment_method_is_active>
                    <type>singleton</type>
                    <class>PaymentFilter_Model_Observer</class>
                    <method>paymentMethodIsActive</method>
                </paymentfilter_payment_method_is_active>
            </observers>
        </payment_method_is_active>
    </events>
    ...
</global>

Create observer file app/code/codepool>namespace>package/Model/Observer.php

class namespace_package_Model_Observer {

        public function paymentMethodIsActive(Varien_Event_Observer $observer) {
            $event           = $observer->getEvent();
            $method          = $event->getMethodInstance();
            $result          = $event->getResult();
            $currencyCode    = Mage::app()->getStore()->getCurrentCurrencyCode();


                if($someTrueConditionGoesHere){
                    $result->isAvailable = true;
                }else{
                    $result->isAvailable = false;
                }

        }

    }