Could it be related to the question: Why does my .NET application crash when run from a network drive?
That your .net application has other rights on the network share than on your local disk. Updating to 3.5 SP1 will normally remove this issue. Otherwise, check the policies for remote code for .net.
Also you could try an other non .net application (procmon for instance) which required elevation to put it in the same dir and see what happens.