I was unable to alter the previous report because I had not entered a password when I reported the bug...

It appears to work in simple cases:

ie when:
/php/test.php
/common.php

in test.php
<?
   require_once('../common.php');
   display_test();
?>

in common.php
<?
   function display_test()
   {   
      echo 'test';
   }
?>

But it fails in the following case:
/usr/home/willwong/public_html/common.php
/usr/home/willwong/public_html/php/common2.php
/usr/home/willwong/public_html/php/php2/test.php

in test.php
<?
   require_once('../../common.php');
   display_test();
?>

in common.php
<?
   require_once('php/common2.php');
?>

in common2.php
<?
   function display_test()
   {   
      echo 'test';
   }
?>

This fails with the error:
Fatal error: Failed opening required 'php/common2.php' (include_path='') in /usr/home/willwong/public_html/common.php on line 2