VLC: Unable to open relative path in XSPF playlist

Saving playlist in XSPF format stores the absolute file paths by default in VLC. To make it portable, I have created my XSPF playlist with relative paths including only the filename itself between the <location> tags as the playlist file is in the very same directory as the media files. The validator at http://validator.xspf.org/ said it's OK, but VLC gives the error message:

Unable to open 'video001.avi'

I've also tried <location>file://video001.avi</location> and <location>"video001.avi"</location>, but still kept on responding error messages instead of playing the files.

Is it the syntax that is wrong? (If it is so, why did the Spiff validator accept it?)

(Windows XP; VLC Portable 0.8.6c)