<p>if I call php's <code>parse_ini_file("foo.ini")</code>, in what paths does it look for foo.ini ? 
the include path? the function's documentation doesn't mention it.</p>

I would imagine it only looks in the current working directory - See
http://uk3.php.net/manual/en/function.getcwd.php
if you want to know what that is.
You can always find a path relative to your application by basing it on $_SERVER['DOCUMENT_ROOT']