BUG #1354: psql.exe won't start on NTFS partition under some circumstances

The following bug has been logged online:

Bug reference: 1354
Logged by: Daniel Grace
Email address: thisgenericname(at)gmail(dot)com
PostgreSQL version: 8.0
Operating system: WinXP Pro
Description: psql.exe won't start on NTFS partition under some
circumstances
Details:

Postgresql 8.0.0rc1

The failed password authentication messages below occur BEFORE being
prompted for a password, and the -W does not force a prompt like it should.

On my computer, D: is an NTFS partition and is where Postgres is installed
to.
C: and E: are both FAT32.
My user account is an Administrator.

The command line being used is the one the installer created for the 'psql
to template1' shortcut, though other syntaxes also fail (psql <db>
<username> fails as well with the same errors)

C:\>D:\pgsql\bin\psql.exe -h localhost -p 5432 template "root"
Password: ^C (expected behavior)

C:\>D:

D:\>D:\pgsql\bin\psql.exe -h localhost -p 5432 template1 "root"
psql: FATAL: password authentication failed for user "root" (should
prompt for password)

D:\>cd pgsql\bin

D:\pgsql\bin>D:\pgsql\bin\psql.exe -h localhost -p 5432 template1 "root"
psql: FATAL: password authentication failed for user "root" (should
prompt for password)

D:\>E:

E:\>D:\pgsql\bin\psql.exe -d venura -U root
Password: ^C (expected behavior)