After some troubleshooting, I realized that this error is not caused by the version of the .NET Framework. It occurs if cuteeditor is run from a sub folder within the virtual directory.
The solution seems to be to set the 'FilesPath' property to 'CuteSoft_Client/CuteEditor/'. Once this is property is set, the editor can be run from any folder.
Editor1.FilesPath = "CuteSoft_Client/CuteEditor/"
Cheers,