LaTeX graphics file not found / unkown graphics extension

I had an error using LaTeX (specifically, TeXShop). The document should insert the postscript file ``watermark.ps'', but instead it tells me that it cannot find it.

[2]) (./myfile.tex

! LaTeX Error: File `watermark' not found.

See the LaTeX manual or LaTeX Companion for explanation.
Type H for immediate help.
...

l.12 \includegraphics{watermark}

?

If I include the ``.ps'' extension, I get a similar error:

! LaTeX Error: Unknown graphics extension: .ps.

Oddly enough, I transferred all the files to a computer running Unbuntu (Linux), and the document compiled cleanly. So why were there errors on the Mac?

I tried to find the answer by replicating the problem again. But I used a different Mac (since the original one is a laptop). I did not have this problem again, though. The second Mac has TeXShop version 2.10beta8 (210), while the laptop (the one with the error) has an earlier version (version 2 (2.09)).

The fix is actually simple:
Set "Typeset" to "TeX and Ghostscript" instead of the default "Pdftex". (Do this by clicking on the "Typeset" tab when TexShop is running, then select the correct item from the drop-down menu).

The later version seems to remember the setting last used, while the earlier version appears to revert back to the default.