diff --git a/src/insets/ChangeLog b/src/insets/ChangeLog
index c9763f5527..544f62fe65 100644
--- a/src/insets/ChangeLog
+++ b/src/insets/ChangeLog
@@ -1,3 +1,12 @@
+2001-07-30  Baruch Even  <baruch@lyx.org>
+
+	* insetgraphics.C: Added EPSI to be an alias of EPS.
+
+2001-07-29  Baruch Even  <baruch@lyx.org>
+
+	* insetgraphics.C: Change GRAPHICS to Graphics.
+	Changed image conversion rules (documented at the beginning of file).
+
 2001-07-28  Angus Leeming  <a.leeming@ic.ac.uk>
 
 	* insetert.C (get_new_label): int -> Paragraph::size_type to get
diff --git a/src/insets/insetgraphics.C b/src/insets/insetgraphics.C
index 530db1b052..7364432116 100644
--- a/src/insets/insetgraphics.C
+++ b/src/insets/insetgraphics.C
@@ -8,11 +8,6 @@
  *           This file Copyright 2000 Baruch Even.
  * ====================================================== */
 
-/*
-How to use it for now:
-    * The lyxfunc 'graphics-insert' will insert this inset into the document.
-*/
-
 /*
 Major tasks:
 	* Switch to convert the images in the background, this requires work on
@@ -20,7 +15,6 @@ Major tasks:
 
 Minor tasks:
     * Pop up a dialog if the widget version is higher than what we accept.
-	* Prepare code to read FigInset insets to upgrade upwards
 	* Provide sed/awk/C code to downgrade from InsetGraphics to FigInset(?)
         
 */
@@ -50,11 +44,11 @@ Known BUGS:
 		
 TODO Before initial production release:
     * Replace insetfig everywhere
-        * Read it's file format
-        * Get created by all commands used to create figinset currently.
         * Search for comments of the form
             // INSET_GRAPHICS: remove this when InsetFig is thrown.
-          And act upon them.
+          And act upon them. Make sure not to remove InsetFig code for the 
+		  1.2.0 release, only afterwards, after deployment shows InsetGraphics
+		  to be ok.
  
 TODO Extended features:
  
@@ -76,6 +70,9 @@ TODO Extended features:
 	* Add support for the 'picinpar' package.
 	* Improve support for 'subfigure' - Allow to set the various options
 		that are possible.
+	* Add resizing by percentage of image size (50%, 150%) - usefull for two
+		images of different size to be resized where they both should have
+		the same scale compared to each other.
  */
 
 /* NOTES:
@@ -112,9 +109,16 @@ TODO Extended features:
  * moving the document file and its images with no problem.
  *
  * Conversions:
- *  
- *  Apparently the PNG output is preferred over PDF images when doing PDF
- *  documents (i.e. prefer imagemagick eps2png over eps2pdf)
+ *   Postscript output means EPS figures.
+ *
+ *   PDF output is best done with PDF figures if it's a direct conversion
+ *   or PNG figures otherwise.
+ *   	Image format
+ *   	from        to
+ *   	EPS         epstopdf
+ *   	JPG/PNG     direct
+ *   	PDF         direct
+ *   	others      PNG
  */
 
 #include <config.h> 
@@ -152,6 +156,7 @@ extern string system_tempdir;
 using std::ostream;
 using std::endl;
 
+
 // This function is a utility function
 inline
 string const RemoveExtension(string const & filename)
@@ -331,7 +336,7 @@ Inset::EDITABLE InsetGraphics::editable() const
 
 void InsetGraphics::write(Buffer const * buf, ostream & os) const
 {
-	os << "GRAPHICS FormatVersion 1\n";
+	os << "Graphics FormatVersion 1\n";
 
 	params.Write(buf, os);
 }
@@ -341,12 +346,12 @@ void InsetGraphics::read(Buffer const * buf, LyXLex & lex)
 {
 	string const token = lex.GetString();
 
-	if (token == "GRAPHICS")
+	if (token == "Graphics")
 		readInsetGraphics(buf, lex);
 	else if (token == "Figure") // Compatibility reading of FigInset figures.
 		readFigInset(buf, lex);
 	else
-		lyxerr[Debug::INFO] << "Not a GRAPHICS or Figure inset!\n";
+		lyxerr[Debug::INFO] << "Not a Graphics or Figure inset!\n";
 
 	updateInset();
 }
@@ -505,6 +510,30 @@ InsetGraphics::createLatexOptions() const
 	return opts;
 }
 
+namespace {
+	
+string decideOutputImageFormat(string const & in_fmt)
+{
+	// lyxrc.pdf_mode means:
+	// Are we creating a PDF or a PS file?
+	// (Should actually mean, are we using latex or pdflatex).
+	
+	if (lyxrc.pdf_mode) {
+		if (in_fmt == "eps" || in_fmt == "epsi" || in_fmt == "pdf")
+			return "pdf";
+		else if (in_fmt == "jpg" || in_fmt == "jpeg")
+			return in_fmt;
+		else
+			return "png";
+	}
+
+	// If it's postscript, we always do eps.
+	if (in_fmt == "eps" || in_fmt == "epsi")
+		return in_fmt; // eps & epsi are both eps, but different extension.
+	return "eps";
+}
+
+} // Anon. namespace
 
 string const 
 InsetGraphics::prepareFile(Buffer const *buf) const
@@ -531,7 +560,7 @@ InsetGraphics::prepareFile(Buffer const *buf) const
 	
 	// Are we creating a PDF or a PS file?
 	// (Should actually mean, are we usind latex or pdflatex).
-	string const image_target = (lyxrc.pdf_mode ? "png" : "eps");
+	string const image_target = decideOutputImageFormat(extension);
 
 	if (extension == image_target)
 		return params.filename;