I just encountered this issue. I was able to resolve it via the following sequence of steps, though I am not sure if they are all required or not! In my case, the "Links relative to:" option was already set to "Document".
This worked on an XP SP3 box running CS4.
1. Reset DW's window workspace, Window-Workspace Layout-Reset. Closed DW.
2. Deleted the cache file (\Documents and Settings\user name\Application Data\Abobe\DreamweaverCS4\en_US\Configuration\WinFileCachexxxx.dat
3. Opened DW's Site Manager - moved "Links relative to:" from "Document" to "Site Root".
4. Closed DW.
5. Opened DW's Site Manager again - moved "Links relative to: from "Site Root" back to "Document".
Poof - magic! Hope this helps.