Turns out the offending line is this:
<!--#include file="../somefile.inc"-->
<!--#include file="../somefile.inc"-->
After a bit more google-ing, it's obvious that the problem lies in IIS 7.0 and above configuration that set Enable Parent Paths to False by default.
Solution was simple:
Go to IIS Manager, Default Web Site | (feature view) IIS | ASP | Enable Parent Paths = True