[AUCTeX] preview-latex returns "LaTeX found no preview images" :(

[inuck123]

I am facing a problem in using the preview-latex function of auctex in Mac OS X 10.6.4. 
The auctex program in my Mac was already pre-installed in Carbon Emacs I downloaded
from http://homepage.mac.com/zenitani/emacs-e.html, as I figured out with help from
this discussion group. 

So far, auctex seems to work fine, except preview-latex which I am most keen on: 
the command C-c C-p C-d appears to run but ends with error messages in the buffer as

"Preview-LaTeX exited as expected with code 1 at Wed Aug 18 15:57:25
LaTeX: LaTeX found no preview images"

and 

"error in process sentinel: LaTeX found no preview images" (in the minibuffer at the bottom).

Any tips on how I may fix this?

In case this might give a clue: Viewing the output in auctex works fine with pdflatex, but 
when I toggle to dvi output (C-c C-t C-p) the View command generates "open [filename].pdf"
in the minibuffer but produces no image at all (although xdvi in Terminal opens the dvi file 
without problem). The error messages above are the same both in pdf mode and dvi mode. 

Inuck