Thanks to guys at BlueSky for providing us access and giving us a chance to see what is wrong. Solution is pretty simple. Open /activecollab/angie/functions/web.php and find this function:

function fix_input_quotes() {
  if(get_magic_quotes_gpc()) {
    array_stripslashes($_GET);
    array_stripslashes($_POST);
    array_stripslashes($_COOKIE);
    array_stripslashes($_FILES);
  } // if
} // fix_input_quotes

Replace it with:

function fix_input_quotes() {
  if(get_magic_quotes_gpc()) {
    array_stripslashes($_GET);
    array_stripslashes($_POST);
    array_stripslashes($_COOKIE);
  } // if
} // fix_input_quotes

That should be it. Please let us know how it went. This fix will be present in next version of activeCollab.

PS: Only people on Windows appear to be affected with this problem.