Not sure about the issue with xfig, but I can reproduce your error. Perhaps another vector drawing program such as inkscape would work for you. You could also try converting to other formats such as PDF. If you describe what your needs are perhaps someone could suggest other approaches.

I am unable to get xfig to work with EPS files. If I try to add one with the Picture tool, I get an error (see below).
I am using xfig 3.2 (patchlevel 5a) and ghostscript 8.70... and am on a 64-bit Centos6 machine. Here is the error that I get:

Execution stack:
%interp_exit .runexec2 --nostringval-- --nostringval-- --nostringval-- 2 %stopped_push --nostringval-- --nostringval-- --nostringval-- false 1 %stopped_push 1862 1 3 %oparray_pop 1861 1 3 %oparray_pop 1845 1 3 %oparray_pop 1739 1 3 %oparra
_pop --nostringval-- %errorexec_pop .runexec2 --nostringval-- --nostringval-- --nostringval-- 2 %stopped_push --nostringval-- 1862 3 3 %oparray_pop --nostringval--
Dictionary stack:
--dict:1153/1684(ro)(G)-- --dict:0/20(G)-- --dict:74/200(L)--
Current allocation mode is local
Last OS error: 2
GPL Ghostscript 8.70: Unrecoverable error, exit code 1
EPS object read OK, but no preview bitmap found/generated


I poked around for a while online trying to find a reasonable solution, but was unsuccessful. I did see that this has been a problem for other users in other forums, so I know it's not just me! If anyone has any advice or suggestions, it would be much appreciated. Thanks!