Why should it have this parameter on ?
The first thing I'm thinking about when it comes to problems with certain php application at the sme server is that it is running a php chroot security function preventing access for the php scripts outside a restricted area. Because of this things like file upload can be a problem.
In general.. Correction should not be made on the sme server by editing the config files. There is an other method based on "editing template fragments".
But on the other hand editing the configuration files should work for a while, even though it is considered to be "bad and wrong". The chane due to editing config files will just be temporarely as the operating system will produce its own config files.
But I think that if a incorrect change by editing the config files does not work at least for a short while, the correct procedure by modifying the template fragments will not work either.
By the way .. have you tested Sitelite before ? Can it be recomended ?