Anomalous DVIPS behaviour

[David Carlisle]

> so what is leading DVIPS to believe that 
> there should be figures?

This:

> (invoked via WinEdt)

I think you'll find that your editor is sneaking some code in at the
front of the tex file (check your log) that inserts source specials
that allow jumping back to the source line from the preview.

"Couldn't find figure file" is just the dvips spelling of
"unknown special" due to dvips's fallback behaviour of trying to load
a graphic file if it can't think of anything better to do with the
special.

David