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Then you're doing it wrong. If $base_url is www.mydomain.com/mysite, then adding the following to your theme would be replicating the behavior of Drupal's past:

Thanks, I will go confirm this tonight at home.

I have confirmed that my $base_url in my settings.php is set correctly, under localhost, then site name, then subfolder. Without a trailing slash. In this case, it is: $base_url = 'http://localhost/devel/dini470b5'; // NO trailing slash! I have also reconfirmed that the base_url is correctly shown in the <base href> tag, by viewing the source of the page once it is rendered. Still, the <a href>'s require that I add the "dini470b5/" in front of "files/pictures". Anyways, this is not an issue anymore, really, because this is the last site I am upgrading with existing content, so this means that I have to do it a few times for images in the theme only, so not a big problem anymore. Thanks for all the comments! Kobus