LCD and PIC18F2685 - Weird LCD behavior

[Castor]

I'm using the 28 pin demo board from Microchip (see schematic below) with a 18F2685pic, MPLAB IDE and Picbasic pro v2.47, and ICD2 for programming. The LCD pins are connected in the default manner. I'm using the internal oscilator @8 MHZ and the config file in my pbp directory is modified accordingly, that is:

__CONFIG    _CONFIG1H, _OSC_IRCIO67_1H

The behavior the LCD is experiencing is bizzare: First, it shows black boxes on the first line (so everything fine until now). When releasing from reset, still black boxes on the first line. If I take LCD's Vdd out for a second I start seeing weird characters. Plug it back in, weird characters again. When I try to output "123456789" I get "1230123"(that is, with the vdd plugged in). If I try to output "hello", werid characters again.

Some of the pins on the demo board are occupied with the default components(leds, pot) but I tried to stay away these pins. Just RB3 (LCD E(nable) is on the same pin as one of the board's LED)

and the code:

' display a message on the lcd
DEFINE OSC 8
DEFINE LCD_DREG PORTB ' portb is the port used for data lines
DEFINE LCD_DBIT 4		'the pin on port connected to LCD pin DB4
DEFINE LCD_RSREG PORTA	'pic port used for the RS line
DEFINE LCD_RSBIT 4		' port pin where RS pin is connected
DEFINE LCD_EREG PORTB	' PIC port where E pin is connected
DEFINE LCD_EBIT 3		' port pin where E pin is connected
DEFINE LCD_BITS 4		' 4 bit mode
DEFINE LCD_LINES 2		' 2 LCD lines
DEFINE LCD_COMMANDUS 2000	'delay between LCD commands
DEFINE LCD_DATAUS 50		'delay between data sent
adcon1=7
trisb=0 				' port b all outputs
trisa=0					' port a all outputs
intcon2.7=0			'enable pull ups
OSCCON = %01110000
'---main program

repeta:
high portb.0   ' light led to see when main loop is running
LCDOUT $fe,1           ' Clears LCD
LCDOUT $fe,2, "hello"  ' Returns to beginning of line 1 and writes "string"
pause 1000
goto repeta

The lcd is a optorex dmc16207 which is Hitachi HD44780 compatible