Hi,
I did this change for v1.31 and it works great.
In functions.inc.php I replaced
$template = fread(fopen($template_file, 'r'), filesize($template_file));
with
//$template = fread(fopen($template_file, 'r'), filesize($template_file));
ob_start(); // Start output buffering
include ($template_file); // Parsed file goes to buffer
$template = ob_get_contents(); // Assign buffer to $template
ob_end_clean(); // Clear buffer and turn off output buffering
and in my template.html I have added
<?php include 'file.html'; ?>
I have .html defined aswell as .php in my .htaccess file
AddType application/x-httpd-php .html
Hope this helps to make things clear.