On my site inserted links which used relative links were not getting updated. Since this was a crucial issue for me (and maintenance here seems pretty well stalled) I looked into it myself. The logic in _filefield_paths_replace_path made no sense to me - the regex constructed was never matching and I'm not really sure how it ever could work. Heck, it was adding "http" in the middle of the match. I think maybe it was trying to be too intelligent, but the result was nonsense. With a little rewriting of the matching logic, I got it to work.
The supplied patch (which includes the fixes from http://drupal.org/node/1475732) restores operation for absolute and relative paths and works without conflicts alongside all the internationalization goodies, pathauto cleanup, etc.. Installation in a subdirectory is untested, but in theory it should work - the relative match is created including the path portion of the absolute match. Styled matches and private files are also untested, as I was working with non-image files, but at least this is sure to work some of the time, and under typical usage. The code in beta3 and 1.x-dev are both completely non-functional.