Well, I moved E and RS to RB0 and RB1 ... it still works.

You might try turning that LED around and see if PORTB.0 will drive the output both ways.
It could be that half of the output stage is toasted.

And for the config error, you just need to comment the default configs in the .inc file.
See this page ... http://melabs.com/support/config_defaults.htm