My latest article: Master Pages In ASP.NET 2.0. Excerpt:
The master page implementation outlined above has another consequence to watch for. Since the master page injects it's controls and markup into a page’s Controls array, any relative URLs in the master page markup may break. Remember, the browser will request the web form, not the master page, so all of the URLs will be relative to the web form. When the web form and master page are in different directories, relative URLs may point to the wrong location. To help alleviate relative URL problems, ASP.NET will rebase relative URLs for server-side controls. Rebasing will build the correct URL to the resource.
P.S. Every tool ever made to format code into HTML has at least one problem that drives me insane.