If anyone is using a Master Page with the WebExplorer on it there appears to be a problem if the master page is not in the same folder as the web pages. After some testing I've found that if the web page using the master page is for example 3 folders down from the root of the website, then the Master Page must also be 3 folders deep. If not you could receive a "Cannot use a leading .. to exit above the top directory" error message.
This is definately the case if you programatically adding groups and items and seems to be caused when trying to add a GroupItem to a group. I havent teasted if it works when binding against a dataset or setting at design time.
I have an email into support regarding this issue and will post a reply when I get one.
Did you ever get a response on this? I am ecnountering the same issue.
I have had a response but as yet no resolution. This issue has been classified as a bug with Tracking Issue #30069.