First thing is I tried this on Apache/Linux and had no problems.

I installed the CVS Windows version on my Windows XP Pro box. Today's date is May 30th, 2003.

I create a virtual directory named "phpbugheader"
inside I've put an index.php page which just says hello world.

Then I create a subdirectory called "test" and put a script in it called test.php
The location of the file on my box is:
http://192.168.0.3/phpbugheader/test/test.php
The contents of the file are as follows:
<?
// this works
//header("Location: http://192.168.0.3/phpbugheader/index.php");

// this doesn't work
header("Location: /phpbugheader/index.php");
die;
?>

As you will notice. If I try to redirect to the index page using the top header call everything works fine.
If I try using the bottom header call what happens is it redirects to the page (eg the browser displays the hello world message) the problem is that the location still shows:
http://192.168.0.3/phpbugheader/test/test.php

This only seems to happen when the location starts with / it's seems to work fine when using ../

This causes huge problems on site with relative images because the browser seems to think it's in the test directory when it should be in the base directory.
I can reproduce this bug surfing with IE6 and Mozilla1.4b and from Mozilla1.4b on a linux client.

This leads me to conclude the bug is isolated to Windows and IIS.