Also, make sure imagemagick is installed. Btw, you might find this useful for previewing babel-generated images:
(defun my-org-babel-redisplay-images ()
(when org-inline-image-overlays
(org-redisplay-inline-images)))
(add-hook 'org-babel-after-execute-hook
#'my-org-babel-redisplay-images)
This reloads the previewed images each time they potentially change.
