Xfig does the job for me, it just takes a bit of time getting used to. Haven't tried Dia or Sodipodi yet, but they also look promising.
As far as equations in figures go, I use psfrag: http://www.ctan.org/tex-archive/help/Catalogue/entries/psfrag.html It lets you replace any text in the eps figure with any latex code with some ERT in the figure float in Lyx. The only drawback with psfrag is when you want PDF output: you have to do the latex->dvi->ps->pdf route, which means no hyperlinks. I don't think you could do pdflatex or dvipdfm. I wish that someone could prove me wrong. Milos -- Milos Komarcevic Photonics and Sensors Group Cambridge University Engineering Department Trumpington Street Cambridge CB2 1PZ UK Tel: +44 1223 339762 Fax: +44 1223 765268 Email: [EMAIL PROTECTED]