diff --git a/common/include/Utilities/IniInterface.h b/common/include/Utilities/IniInterface.h
index 957015510c..35764f7670 100644
--- a/common/include/Utilities/IniInterface.h
+++ b/common/include/Utilities/IniInterface.h
@@ -51,7 +51,7 @@ public:
 
 	virtual void Entry( const wxString& var, wxString& value, const wxString defvalue=wxString() )=0;
 	virtual void Entry( const wxString& var, wxDirName& value, const wxDirName defvalue=wxDirName() )=0;
-	virtual void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName() )=0;
+	virtual void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName(), bool isAllowRelative=false )=0;
 	virtual void Entry( const wxString& var, int& value, const int defvalue=0 )=0;
 	virtual void Entry( const wxString& var, uint& value, const uint defvalue=0 )=0;
 	virtual void Entry( const wxString& var, bool& value, const bool defvalue=false )=0;
@@ -114,7 +114,7 @@ public:
 
 	void Entry( const wxString& var, wxString& value, const wxString defvalue=wxEmptyString );
 	void Entry( const wxString& var, wxDirName& value, const wxDirName defvalue=wxDirName() );
-	void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName() );
+	void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName(), bool isAllowRelative=false );
 	void Entry( const wxString& var, int& value, const int defvalue=0 );
 	void Entry( const wxString& var, uint& value, const uint defvalue=0 );
 	void Entry( const wxString& var, bool& value, const bool defvalue=false );
@@ -152,7 +152,7 @@ public:
 
 	void Entry( const wxString& var, wxString& value, const wxString defvalue=wxString() );
 	void Entry( const wxString& var, wxDirName& value, const wxDirName defvalue=wxDirName() );
-	void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName() );
+	void Entry( const wxString& var, wxFileName& value, const wxFileName defvalue=wxFileName(), bool isAllowRelative=false );
 	void Entry( const wxString& var, int& value, const int defvalue=0 );
 	void Entry( const wxString& var, uint& value, const uint defvalue=0 );
 	void Entry( const wxString& var, bool& value, const bool defvalue=false );
@@ -180,3 +180,7 @@ protected:
 
 #define IniBitfieldEx( varname, textname )	varname = ini.EntryBitfield( wxT(textname), varname, varname )
 #define IniBitBoolEx( varname, textname )	varname = ini.EntryBitBool( wxT(textname), !!varname, varname )
+
+//used for filenames and folder names as ini values.
+//Set to app root folder, so all files and folders which are inside appRoot will be written as relative.
+void SetFullBaseDir( wxDirName appRoot );
diff --git a/common/include/Utilities/Path.h b/common/include/Utilities/Path.h
index 4945ec8639..509923230e 100644
--- a/common/include/Utilities/Path.h
+++ b/common/include/Utilities/Path.h
@@ -72,6 +72,28 @@ public:
 		return wxFileName::SameAs( filepath );
 	}
 
+	//Returns true if the file is somewhere inside this directory (and both file and directory are not relative).
+	bool IsContains( const wxFileName& file ) const
+	{
+		if( this->IsRelative() || file.IsRelative() )
+			return false;
+
+		wxFileName f( file );
+
+		while( 1 )
+		{
+			if( this->SameAs( wxDirName(f.GetPath()) ) )
+				return true;
+
+			if( f.GetDirCount() == 0 )
+				return false;
+
+			f.RemoveLastDir();
+		}
+
+		return false;
+	}
+
 	// Returns the number of sub folders in this directory path
 	size_t GetCount() const { return GetDirCount(); }
 
diff --git a/common/src/Utilities/IniInterface.cpp b/common/src/Utilities/IniInterface.cpp
index 1f6a97a02c..724395660d 100644
--- a/common/src/Utilities/IniInterface.cpp
+++ b/common/src/Utilities/IniInterface.cpp
@@ -26,6 +26,12 @@ const wxRect wxDefaultRect( wxDefaultCoord, wxDefaultCoord, wxDefaultCoord, wxDe
 template struct FixedInt<100>;
 template struct FixedInt<256>;
 
+wxDirName g_fullBaseDirName = wxDirName(L"");
+void SetFullBaseDir( wxDirName appRoot )
+{
+	g_fullBaseDirName = appRoot;
+}
+
 static int _calcEnumLength( const wxChar* const* enumArray )
 {
 	int cnt = 0;
@@ -113,11 +119,19 @@ void IniLoader::Entry( const wxString& var, wxDirName& value, const wxDirName de
 		value = dest;
 }
 
-void IniLoader::Entry( const wxString& var, wxFileName& value, const wxFileName defvalue )
+void IniLoader::Entry( const wxString& var, wxFileName& value, const wxFileName defvalue, bool isAllowRelative )
 {
 	wxString dest( defvalue.GetFullPath() );
 	if( m_Config ) m_Config->Read( var, &dest, defvalue.GetFullPath() );
 	value = dest;
+	if( isAllowRelative && value.IsRelative() )
+		value = g_fullBaseDirName+value;
+
+	if( value.IsAbsolute() )
+		value.Normalize();
+
+	if (value.HasVolume())
+		value.SetVolume(value.GetVolume().Upper());
 }
 
 void IniLoader::Entry( const wxString& var, int& value, const int defvalue )
@@ -259,10 +273,32 @@ void IniSaver::Entry( const wxString& var, wxDirName& value, const wxDirName def
 		m_Config->Write( var, value.ToString() );
 }
 
-void IniSaver::Entry( const wxString& var, wxFileName& value, const wxFileName defvalue )
+//If isAllowRelative is true, we're saving as relative if the file is somewhere inside the PARENT of pcsx2 folder.
+//When a file is saved as relative, it's always relative to pcsx2 main folder (even if the file is outside of it).
+//e.g. at the next folder structure, files at ISOs_2 and ISOs_3 will be saved relative, but files at ISOs_1 will be saved absolute.
+//  -root
+//   |-ISOs_1
+//   |-parent_of_pcsx2_folder
+//     |-ISOs_2
+//     |-pcsx2_folder
+//       |-pcsx2.exe
+//       |-plugins
+//       | |-...
+//       |-ISOs_3
+void IniSaver::Entry( const wxString& var, wxFileName& value, const wxFileName defvalue, bool isAllowRelative )
 {
 	if( !m_Config ) return;
-	m_Config->Write( var, value.GetFullPath() );
+	wxFileName res(value);
+
+	if ( res.IsAbsolute() )
+		res.Normalize();
+	
+	wxDirName upper( g_fullBaseDirName );
+	upper.RemoveLast();
+	if( isAllowRelative && upper.IsContains( value ) )
+		res.MakeRelativeTo(g_fullBaseDirName.ToString());
+	
+	m_Config->Write( var, res.GetFullPath() );
 }
 
 void IniSaver::Entry( const wxString& var, int& value, const int defvalue )
diff --git a/pcsx2/gui/AppConfig.cpp b/pcsx2/gui/AppConfig.cpp
index b8390caa0c..14cb8552c9 100644
--- a/pcsx2/gui/AppConfig.cpp
+++ b/pcsx2/gui/AppConfig.cpp
@@ -406,6 +406,11 @@ wxString AppConfig::FullpathToMcd( uint slot ) const
 	return Path::Combine( Folders.MemoryCards, Mcd[slot].Filename );
 }
 
+bool IsPortable()
+{
+	return InstallationMode==InstallMode_Portable;
+}
+
 AppConfig::AppConfig()
 	: MainGuiPosition( wxDefaultPosition )
 	, SysSettingsTabName( L"Cpu" )
@@ -471,6 +476,8 @@ void App_LoadSaveInstallSettings( IniInterface& ini )
 	// Attempt to load plugins and themes based on the Install Folder.
 
 	ini.Entry( L"Install_Dir",				InstallFolder,				(wxDirName)(wxFileName(wxStandardPaths::Get().GetExecutablePath()).GetPath()) );
+	SetFullBaseDir( InstallFolder );
+
 	ini.Entry( L"PluginsFolder",			PluginsFolder,				InstallFolder + PathDefs::Base::Plugins() );
 	ini.Entry( L"ThemesFolder",				ThemesFolder,				InstallFolder + PathDefs::Base::Themes() );
 
@@ -530,7 +537,10 @@ void AppConfig::LoadSaveRootItems( IniInterface& ini )
 	IniEntry( Toolbar_ImageSize );
 	IniEntry( Toolbar_ShowLabels );
 
-	IniEntry( CurrentIso );
+	wxFileName res(CurrentIso);
+	ini.Entry( L"CurrentIso", res, res, ini.IsLoading() || IsPortable() );
+	CurrentIso = res.GetFullPath();
+
 	IniEntry( CurrentELF );
 
 	IniEntry( EnableSpeedHacks );
@@ -631,7 +641,7 @@ void AppConfig::FolderOptions::LoadSave( IniInterface& ini )
 
 	//when saving in portable mode, we save empty strings
 	 //  --> on load they'll be initialized to default (relative) paths
-	bool rel = ( ini.IsSaving() && (InstallationMode==InstallMode_Portable) );
+	bool rel = ( ini.IsSaving() && IsPortable() );
 	wxDirName e(L"");
 		
 	ini.Entry( L"Bios",			rel?e:Bios,			Bios );
@@ -669,7 +679,7 @@ void AppConfig::FilenameOptions::LoadSave( IniInterface& ini )
 	//when saving in portable mode, we just save the non-full-path filename
  	//  --> on load they'll be initialized with default (relative) paths (works both for plugins and bios)
 	//note: this will break if converting from install to portable, and custom folders are used. We can live with that.
-	bool needRelativeName = ini.IsSaving() && (InstallationMode==InstallMode_Portable);
+	bool needRelativeName = ini.IsSaving() && IsPortable();
 
 	for( int i=0; i<PluginId_Count; ++i )
 	{
diff --git a/pcsx2/gui/AppConfig.h b/pcsx2/gui/AppConfig.h
index de76c14b59..76a72c3986 100644
--- a/pcsx2/gui/AppConfig.h
+++ b/pcsx2/gui/AppConfig.h
@@ -81,6 +81,7 @@ enum InstallationModeType
 	// This mode is typically enabled by the presence of a 'portable.ini' in the folder.
 	InstallMode_Portable,
 };
+bool IsPortable();
 
 extern InstallationModeType	InstallationMode;
 
diff --git a/pcsx2/gui/AppGameDatabase.cpp b/pcsx2/gui/AppGameDatabase.cpp
index d1e81f2685..7fdd95ba46 100644
--- a/pcsx2/gui/AppGameDatabase.cpp
+++ b/pcsx2/gui/AppGameDatabase.cpp
@@ -149,8 +149,9 @@ void DBLoaderHelper::ReadGames()
 //  AppGameDatabase  (implementations)
 // --------------------------------------------------------------------------------------
 
-AppGameDatabase& AppGameDatabase::LoadFromFile(wxString file, const wxString& key )
+AppGameDatabase& AppGameDatabase::LoadFromFile(const wxString& _file, const wxString& key )
 {
+	wxString file(_file);
 	if( wxFileName(file).IsRelative() )
 		file = (InstallFolder + file).GetFullPath();
 	
diff --git a/pcsx2/gui/AppGameDatabase.h b/pcsx2/gui/AppGameDatabase.h
index 19bf67ceff..fa5ac59b5d 100644
--- a/pcsx2/gui/AppGameDatabase.h
+++ b/pcsx2/gui/AppGameDatabase.h
@@ -51,7 +51,7 @@ public:
 		Console.WriteLn( "(GameDB) Unloading..." );
 	}
 
-	AppGameDatabase& LoadFromFile(wxString file = L"GameIndex.dbf", const wxString& key = L"Serial" );
+	AppGameDatabase& LoadFromFile(const wxString& file = L"GameIndex.dbf", const wxString& key = L"Serial" );
 	void SaveToFile(const wxString& file = L"GameIndex.dbf");
 };
 
diff --git a/pcsx2/gui/RecentIsoList.cpp b/pcsx2/gui/RecentIsoList.cpp
index 47dc7bf3a1..20c3717bd8 100644
--- a/pcsx2/gui/RecentIsoList.cpp
+++ b/pcsx2/gui/RecentIsoList.cpp
@@ -172,9 +172,13 @@ void RecentIsoManager::InsertIntoMenu( int id )
 		wxid = this->m_firstIdForMenuItems_or_wxID_ANY + id;
 
 	curitem.ItemPtr = m_Menu->Append( wxid, Path::GetFilename(curitem.Filename), curitem.Filename, wxITEM_RADIO );
+	bool exists = wxFileExists( curitem.Filename );
 
-	if( m_cursel == id )
+	if( m_cursel == id && exists )
 		curitem.ItemPtr->Check();
+
+	if ( !exists )
+		curitem.ItemPtr->Enable( false );
 }
 
 void RecentIsoManager::LoadListFrom( IniInterface& ini )
@@ -189,9 +193,9 @@ void RecentIsoManager::LoadListFrom( IniInterface& ini )
 	ScopedIniGroup groupie( ini, L"RecentIso" );
 	for( uint i=0; i<m_MaxLength; ++i )
 	{
-		wxString loadtmp;
-		ini.Entry( pxsFmt( L"Filename%02d", i ), loadtmp );
-		if( !loadtmp.IsEmpty() ) Add( loadtmp );
+		wxFileName loadtmp(L"");
+		ini.Entry( pxsFmt( L"Filename%02d", i ), loadtmp, loadtmp, true );
+		if( loadtmp.GetFullName()!=L"" ) Add( loadtmp.GetFullPath() );
 	}
 	Add( g_Conf->CurrentIso );
 
@@ -220,7 +224,7 @@ void RecentIsoManager::AppStatusEvent_OnUiSettingsLoadSave( const AppSettingsEve
 		int cnt = m_Items.size();
 		for( int i=0; i<cnt; ++i )
 		{
-			ini.Entry( pxsFmt( L"Filename%02d", i ), m_Items[i].Filename );
+			ini.Entry( pxsFmt( L"Filename%02d", i ),  wxFileName(m_Items[i].Filename), wxFileName(L""), IsPortable());
 		}
 		
 		ini.GetConfig().SetRecordDefaults( true );