Incorporating .epsi files into TeX docs : failure

[<fergus at bonhard dot uklinux dot net>]

Can _you_ incorporate .epsi files into TeX docs and then make a viewable
.dvi? I can't ... please read on if you might be able to help ... thank you.

W98/SE. Current and complete installation. I start X like this:

1. Start -> Run -> start Xwin -multiwindow
2. Start -> Run -> run rxvt -display :0.0 -e bash

X applications work superbly. In particular latex and xdvi work just fine
(apart from irritating but otherwise ?inconsequential? error msg from xdvi
after quitting the viewer, being

    fcntl F_SETOWN (xdvi): Invalid argument

I suppress this (if I want to) with

    xdvi filename.dvi 2>/dev/null

However, I'm having trouble incorporating diagrams into a TeX document. In
draft mode there is no problem as in

    \documentclass{article}
    \usepackage[draft]{graphicx}
    \begin{document}
    .. <loads of text, maths, etc>
    \begin{figure}[ht]
    \centering
    \includegraphics{diagram.epsi}
    \caption{This is a test diagram}
    \end{figure}
    ..<more maths>
    \end{document}

which presents a nice maths-y page to screen with a 'holding rectangle'
containing text "diagram.epsi" in exactly the right place.

BUT if I omit the [draft] instruction ( ie just the sequence [draft] leaving
\usepackage{graphicx} ), then the command "latex testdoc.tex" is apparently
processed trouble-free but gives rise to a testdoc.dvi that is actually
_smaller_  than that resulting when in [draft] mode, and the command "xdvi
testdoc.dvi" EITHER flashes a .dvi briefly to screen which then vanishes  OR
shows the .dvi up to but not including the diagram and then stalls with the
Windows eggtimer on screen. Pressing Quit gives the error msg

    gs: Unknown device: x11

I realise this may be a user-generated TeX problem, but I have tried
everything to get this to work, and the fact that in [draft] mode it does
work, suggests that at least something, if not everything, is set correctly
... the error msg just described also suggests that maybe I'm setting
something up wrong that is X-related? Even in lines 1. and 2. maybe ...

By the way, the .epsi file is created from an original .dvi using

    dvips diagram.dvi # to make diagram.ps
    ps2epsi diagram.ps # to make diagram.epsi


Thank you for any help you can offer, if you routinely manage this
successfully.

Fergus