I can confirm your results using the code you posted below. It may be a special case, though. A bit of experimentation seems to suggest the problem only surfaces when (a) SET PATH includes the path where the file really is located and (b) you use FILE() to test if the file exists in the drive root. I can't say for sure without some more testing, though.

>To be able to test my code, you must add two lines first

>set defa to c:\
>set path to c:\,c:\temp\dir1
>STRTOFILE('aaa','c:\temp\dir1\xyz.xyz')
>?FILE('c:\xyz.xyz') &&.T. which is NOT correct!!!!!! Surprise....
>?FILE('c:\temp\dir1\xyz.xyz') && .T. which is correct