I can't see that /php.ini is used here, but php/php-cli.ini is used, i.e. a file relative to the place from where PHP was started. 
With PHPRC=/xizzy I get:

# strace -eopen php -r 'echo "bla";' 2>&1|grep ini
open("php/php-cli.ini", O_RDONLY|O_LARGEFILE) = -1 ENOENT (No such file or directory)
open("/xizzy/php-cli.ini", O_RDONLY|O_LARGEFILE) = -1 ENOENT (No such file or directory)
open("/usr/local/lib/php-cli.ini", O_RDONLY|O_LARGEFILE) = 3
open("/usr/local/lib/php/browscap/browscap.ini", O_RDONLY|O_LARGEFILE) = 3

And if php/php-cli.ini is there, PHP only reads that one. This is with 4.3.0-cvs from today, and I don't have Mandrake here (once upon a time, it was a SuSE Linux).

Sorry, but your problem does not imply a bug in PHP itself.  For a
list of more appropriate places to ask for help using PHP, please
visit http://www.php.net/support.php as this bug system is not the
appropriate forum for asking support questions. 

Thank you for your interest in PHP.

I have now tried this using apache_1.3.27 + php-4.2.3 (from Mandrake Cooker) and are experiencing the same thing. I have no idea how to debug this further, all I can say is if /php.ini exists, values from that one shows up from phpinfo() called from a php file. I just stumbled upon this by accident.

I just got bitten by this myself too. But it doesn't happen
with CLI for me, only with the Apache module.

While I could not duplicate the error on my system, I did notice something interresting in my strace:

-- Launching php with:
-- #!sapi/cli/php
-- from php4 root
open("sapi/cli//php-cli.ini", O_RDONLY) = -1 ENOENT (No such file or directory)
open("/usr/local/lib/php-cli.ini", O_RDONLY) = -1 ENOENT (No such file or directory)
open("sapi/cli//php.ini", O_RDONLY)     = -1 ENOENT (No such file or directory)

Note the pair of forward slashes between the path to php and the php.ini filenames?


So I tried something different:
-- Launching php with:
-- #!php
-- from sapi/cli in php4 root
open("php/php-cli.ini", O_RDONLY)       = -1 ENOTDIR (Not a directory)
open("/usr/local/lib/php-cli.ini", O_RDONLY) = -1 ENOENT (No such file or directory)
open("php/php.ini", O_RDONLY)           = -1 ENOTDIR (Not a directory)


Note this time, it treats the php executable as a path!

Suspending this bug since the descision made on this thread:

http://www.zend.com/lists/php-dev/200202/msg01325.html

was to keep CWD in php.ini search path, except for the CLI sapi. Since apache does cd / on startup, php.ini in / will be read. Unless a new decission is made on php-dev, this behaviour is not going to change.

Wont fix.