If you have a git repo with a layout like:

./.git/
./readme.txt
./src/
./src/main.c

if you are in the ./src/ folder, modify main.c, and then run "meld main.c" (while still in that ./src/ folder), you get an error:

-----------------------------------------------------------------------------
Invoking 'patch' failed.

Maybe you don't have 'GNU patch' installed,
or you use an untested version of Git.

Please send email bug report to:
meld-list@gnome.org

Containing the following information:

- meld version: '1.3.0'
- source control software type: 'Git'
- source control software version: 'X.Y.Z'
- the output of 'git diff HEAD somefile.txt'
- patch command: 'patch --strip=1 --reverse --directory=/tmp/tmpq2xeI_-meld'
-----------------------------------------------------------------------------

If you cd .. (back to ./) and run meld ./src/main.c, everything works as expected.

The output of 'git diff HEAD ChangeLog' (from meld's git repo: help/ChangeLog):
-----------------------------------------------------------------------------
diff --git a/help/ChangeLog b/help/ChangeLog
index 0a348c1..87f1a12 100644
--- a/help/ChangeLog
+++ b/help/ChangeLog
@@ -1,3 +1,7 @@
+2010-03-03  Philippe Chaintreuil <i_get_enough_spam_thanks@parallaxshift.com>
+
+       * help/ChangeLog: A change that will never be checked in.
+
 2009-04-19  Mario Blättermann <mariobl@gnome.org>
 
        * de/de.po: Added German translation.
-----------------------------------------------------------------------------

My git version: 1.6.4.4

This also happens with the latest version from git (a51bc48151a9eb9b4bf1964f8937181af587835d).