>>I've stopped Symantic Antivirus service and tried running the app - same result. Does it mean we can exclude the Antivirus interferance possibility?
>
>I'm not 100% sure but I would think so.

The problem is now resolved and I should have started from this instead of long list of things I've tried.

It was bad dlls (including even VFP6.dll) hanging in various places. So, removing them and also installing from the account with Domain Admin privilleges resolved the problem.