Well, Mark,
The IDE of both Delphi and Lazarus does it always like that automatically in the dpr/lpr....
And always uses fully qualified paths there, and _only_ in the dpr/lpr. The fact that the usage is not very universal says enough. Projects shouldn't be forced to hardcode driveletters and global paths in the sources. What if you want to check out some release branch? The old VSS nightmare of drive substituting hacks looms again.
Delphi (tested: D6..Delphi Seattle) has some problems with partial paths, specially lower than the .dpr location. These are interpreted relative to the IDE current directory, which might not be the same as the .dpr's (e.g. after using file->open to visit a different file, or browsing to find a source file when debugging, or switching project using "recent projects". Opening a project via file-> open project always works, probably because the file open dialog (or the handler that it triggers) does set the working dir to the dir of the opened file.
So
I'm 100% it is for the search paths, but iirc this was also for the "in" notation.
Beside that USES IN doesn't have anything to do with hierarchical namespaces. Which seemed to be the OP's goal.