Sanjoy Mahajan
\externalfigure won't find a metapost eps file in a subdirectory, if the mps has the numerical (.1) extension.
Here's the debugging info after enabling the graphics.locating tracker (which I learned about at the very useful page http://wiki.contextgarden.net/Command/externalfigure): graphics > inclusion > forcing format '1' graphics > inclusion > 'simple.1' cannot be resolved graphics > inclusion > './simple.1' cannot be resolved graphics > inclusion > '../simple.1' cannot be resolved graphics > inclusion > '../../simple.1' cannot be resolved graphics > inclusion > 'fig/simple.1' resolved to 'fig/simple.1' graphics > inclusion > format '1' is not supported -Sanjoy