EPS Graphic with transparent bkgd placed over shape: IDCS3

In Photoshop CS3 I created a graphic of a basketball player and masked him out. I then deleted the mask, leaving me with just the player. I now have a document that is 8x10", 300 dpi, with a transparent background. I flattened it and saved it as a Photoshop EPS.
In InDesign CS3 I created a shape layer.
I then created a graphics frame and placed my graphic with transparent bkgd in it.
I arranged the layers so that my graphics layer is directly above my shape layer.
Why isn't the background of the graphics layer transparent? It does not let the shape show through.
I tried this technique:
Object>Clipping Path>Options>Detect Edges = This is roughly what I want, but the edges are ragged.
What is this technique called that I am trying to perform? I can't decide on the vocab. to use to navigate through the help menus or forum topics here.
Thank you.

^ Just a quick note on #2 that transparency *effects* (as in 50% opacity) are not supported. However, simple background transparency should be.
The Photoshop trip is probably your culprit as noted by OldBob, but whenever you work with EPS, you should also set your import options for EPS graphics to "Raster preview from postscript" (or whatever the "from postscript" option is called). Without that option, drop shadows will generate around the bounding box not the shape of the EPS object. Not sure whether the background will be correctly transparent either.

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Link to .psd file "Welcome text"

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Message was edited by: Stormcloud492

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EPS Graphic with transparent bkgd placed over shape: IDCS3

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