Explorer Bugs: _splitpath error? (was Explorer browsing doesn't work when run with "-nodesktop")

For some reason IShellFolder::ParseDisplayName (from shell32.dll) returns
E_INVALIDARG in call from subsys/system/explorer/utility/shellclasses.h
(line ~ 526) with path "c:\reactos". When you close the message box shown
and try to click on one of the buttons in toolbar (Shell, A:\, C:\, ...) it
causes usermode exception. Stack trace:

• _splitpath - lib/msvcrt/stdlib/splitp.c
• MainFrame::activate_drive_window -
  subsys/system/explorer/shell/mainframe.cpp
• MainFrame::Command - subsys/system/explorer/shell/mainframe.cpp
• Window::WindowWndProc - subsys/system/explorer/utility/window.cpp
• CallWindowProcW - lib/user32/windows/message.c
• User32CallWindowProcFromKernel - lib/user32/windows/window.c
  ...