Version:            (using KDE 4.1.0)
OS:                Linux
Installed from:    Unlisted Binary Package

Try going into a zip file, then going back up a level -- the zip:/ prefix is retained.

Example:

in /home/user

double-click on test.zip to enter it

location bar now shows (correctly) zip:/home/user/test.zip

go up a level

location bar now shows (incorrectly) zip:/home/user

refreshing will not clear the zip: prefix, and if you then navigate into another normal folder, it goes away for that folder (e.g. it'll show "/home/user/Desktop"), but when you go back up, the zip: prefix is there again (still shows "zip:/home/user").