Illustrator CS5 external links problem

Question

My company has recently switched over to using Illustrator as our primary interface design tool. We have several designers working on a set of files. We are using externally linked files for shared components and for any file that has a bitmap image needed. We are having problems with having to relink or update the links every time we work on a file after someone else has.
A lot of us work remotely so we are all working on a different directory. However the project directory is kept the same. We have all of our files with a links folder with all of our links in the same directory (this is how we do our InDesign files too with no trouble). It seems like Illustrator is linking things with the full path not the relative path. This is a big problem for us. We've already tried going into Preferences > File Handling and having links updated automatically. It does seem to help with the linked ai files but not any of the bitmap ones.
Does any one know how to fix this? Does Illustrator really link things with a full path instead of relative? Is there something else going on here?
Thanks!!

Answer 1

Mike, that's right, that setting simply automatically updates without asking, the placed content that had been modified. This doesn't update the path to the linked file and I didn't say that. What I said in other words is: if the linked file is not found where the path indicates but the file is in the same folder as the .AI file then the path will be updated for the session (double clicking on the link will show the new path) and it will be saved in the file if choosing Save. If you close without Saving the path will not be changed in the file.
Quick example:
Create an .AI file, place a linked image in it, then save the file NOT in the folder where the placed image is, and close.
Move the image file in a third folder.
Open the .AI file and Illustrator will report missing link.
Close the file.
Move the image file in the same folder as the .AI file and open the AI file - now  everything will be fine but when you close it it will ask you to Save  even though you've done nothing because there is a change which is the new path of the linked file.