If the Work Directory property under XST -> Properties is set to anything other than ./xst, the Check Syntax process will still use the .xst directory. Other XST processes, such as synthesis, correctly use the Work Directory property setting.
The problem is that Project Navigator is not correctly setting the working directory in the <project>.xst file when running Check Syntax."
The first two lines of the <project>.xst should be:
set -tmpdir "./<dir>/projnav.tmp"
set -xsthdpdir ./<dir>
However, for the Check Syntax command the "set -xsthdpdir ./<dir>" line is missing, which leads to the creation of "./xst" directory (default setting for XST).
This issue is fixed in ISE 11.1.