According to Pub 2003, you need a graphics filter to insert .eps files. The
following is copied directly from the Help file:
The Encapsulated PostScript (EPS) graphics filter (Epsimp32.flt) supports
the Adobe Systems Encapsulated PostScript Specification versions 3.0 and
earlier. The filter supports .eps images from Tagged Image File Format
(.tif, .tiff) (Tagged Image File Format (TIFF): A high-resolution, tag-based
graphics format. TIFF is used for the universal interchange of digital
graphics.) and Windows Metafile (.wmf) embedded previews.
If an EPS graphics file contains an embedded TIFF or Windows Metafile
preview, a representation of the image appears on the screen. The quality of
the preview depends on the resolution of the TIFF or Windows Metafile image
that is embedded in the EPS file when it is created. Low, medium, and high
resolutions are generally available for creating an EPS file. The higher the
resolution of the preview image, the larger the EPS file size will be.
Because such previews are intended primarily to be used to position images
on the page, resolution is often low. A high-resolution preview is not
necessary because it is discarded when the EPS file is printed to a
PostScript printer.
If an embedded TIFF or Windows Metafile preview is not included in the EPS
graphic that you import, the graphic displays a message instead of a preview
of the graphic in your publication. However, the graphic is printed
correctly to a PostScript printer. If you print an EPS graphic to a
non-PostScript printer, the preview image is printed as it appears on the
screen.
EPS graphics are designed to be printed on a PostScript printer.