@ Tom 13
Windows 1.0 supported WebDAV? Wow!
Seriously, while this might seem to be a problem now, there were actual solid reasons for it back in time, or have you all forgotten the DLL hell of the Win32 era? At least, in some cases, placing a known DLL in the application's folder meant it would be loaded in preference to whatever the hell managed to get itself installed into Windows, not to mention cases of similar-function same-name DLLs that are actually unrelated to each other.
It is also useful for testing DLL code, just drop the DLL in a folder with a test frame app, and run it; install it into Windows when you're happy with it, though to be honest I don't much like how gigabytes of shit ends up in \Windows\System32...
Surely, these days, it would be possible to specify that this run-from-folder-first behaviour ONLY applies to local storage? I run some software over the intranet, but its DLLs are already on my machine - it's "the usual set".