There is no simple single solution to this problem because it depends 
entirely on the relative locations of the FO instance (if you are 
generating an instance) and the graphic *at the time you render them*, 
not at the time you generate the FO.
Therefore, for different processing environments, it might be most 
appropriate to generate an absolute path and in others you have to 
generate a relative path relative to some pre-defined location.
In addition, doing path processing is generally easier in a language 
like Java than in XSLT (although you can do it in XSLT, of course). For 
example, we have utility Java libraries that do things like compare two 
paths and return the shortest relative path. We then expose these 
through Saxon extension functions so that in the XSLT we can easily 
generate relative paths to graphics given some base path (normally 
passed in as a parameter to the XSLT process).
For one customer we have to provide an FO-generation-time option of 
whether graphic paths are relative or absolute because different users 
of the code have different business rules.
Finally, remember that relative paths will be relative to the location 
of the FO instance, not the original XML document (unless you set the 
xml:base attribute in the FO instance to be the location of the orignal 
XML document), which can be a problem, especially if you generate the FO 
instance and then move it somewhere else before rendering it.
This is all presuming that your graphics are not managed in some 
URL-accessible content store that would allow you to specify 
location-independent absolute URIs. In essence, all the W3C 
specifications assume that this is the case, even though for most users 
it is never the case.
Cheers,
Eliot
--
W. Eliot Kimber
Professional Services
Innodata Isogen
9390 Research Blvd, #410
Austin, TX 78759
(512) 372-8155
ekimber@xxxxxxxxxxxxxxxxxxx
www.innodata-isogen.com