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I've had a look through the files and at the latest wordpress wp-settings.php file and that line is still there. I'm not sure whats going on with this. I don't even know if both sites are the latest wordpress. All I know is that they, and two other sites, have completely failed today. And that the sub folders are ok, its just the root ones.
I guess that your web host has upgraded to php 5.3 or later. "set_magic_quotes_runtime()" does not work in php 5.3. Your sites are running old versions of WordPress. They need to be updated, both to deal with this problem and because there are some pretty big security problems with older WordPress versions.
OK. You are right. WordPress 2.6.5 (which I have) does not have set_magic_quotes_runtime() in wp-settings.php. But it is back again in 2.9.2, which is very odd and makes you wonder about Wordpress more generally.
This post suggests a workround until the Wordpress guys wake up and stop including deprecated functions in their code.