Looks like we can't reproduce the issue or there's a problem in the test case provided.
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Deploy path cannot be set relative to the project.
When deploying a new project, if the Deploy Path has not been set, the user is prompted for a path with the file chooser dialog. If you select a directory to deploy to, the absolute path is saved in the Project Settings. If you open Project Settings to change the Deploy Path, as soon as you click the text field, the file chooser dialog appears. I need to choose a relative path, such as "." as the Deploy Path, so that other developers can also open, edit and deploy, using different absolute paths, but same relative path.
I am using Windows 7, so behavior may be different on other platforms.
Allowing for relative paths is a feature we have to remove because it added lots of problems e.g. circular copies
I imagine the xds file should be something like an sln file for Visual Studio. Not something that members of the team check in changes to. Each developer would either have there own export location or the team can standardize with the same drive setup and use c:\inetpub\wwwroot ....
The relative pathing was nice but I fear it's return is very unlikely. Most builders / editors don't allow for this and we now know why.