Is there an option in QGIS to save the project with the data source being a relative path?
I don't see the option here. QGIS Wroclaw1.7.3
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you should see save paths and besides relativ ( I believe its even standard since vers. 1.73, before 1.73 the default was absolut)
ps. just take at look at the screenshot made by manning above ;-)
pps: your screenshot is from settings --> options , thats the wrong way