Thanks for your reply, Sharley. I just upgraded to 1.7.4 26.1.2011.
I discovered that paths in conf files are updated as long as they fully contain the currently installed XAMPP directory.
As I think about the behavior more, it is an intelligent behavior. Kudos to the authors.
One caveat is:
The following paths will *NOT* be updated because 1.7.4. 26.1.2011 does not normalize the path characters
In other words, install.php will not update the above because it thinks they are "different" from "c:/Users/jon/xampp"
Apache, however, will happily accept any combination of / and \ as the same directory.
XAMPP can be made compatible with Windows Apache paths by adding few str_replace($path, '\', '/') in install.php