(Well, "errare humanum est: "I would understand that ConTeXt generates an error from time to time, but not that it's lying about it with "Output written on smalltest.pdf" :)
It's actually XeTeX's fault: it doesn't take the return status of xdvipdfmx into account and says “Output written to ...” whatever the result of xdvipdfmx; you may remember Jonathan explained that to the XeTeX list. I have no idea if this is now fixed in XeTeX. As for the other problem you reported this afternoon (Metapost is not run when using \startMPcode in a XeTeX file), I'm now certain the general problem is the same: because ConTeXt tries hard to find some fonts (\xetextempfont), it generates errors in \batchmode, so the XeTeX run exits with a non-zero return code, and TeXExec thinks the compilation has failed, so it doesn't try to run Metapost as it should; I have made tests with a late July version on my computer where all this doesn't happen (2007.07.25 12:35). I guess it's time for the ConTeXt developers to start over that little discussion we had with the XeTeX developer(s) :-) Arthur