>>BTW, the .fxp files are used only when you run a prg from IDE (or execscript or explicitly compile from within the exe). The executable will contain its own version of the .fxp, which may never be on disk. Which is a bit different from vcx/scx which get compiled first (the objcode field contains the compiled code), on disk, and then included in the exe.
>
>I think this is the key that I misunderstood; I thought that at Build time, VFP compiles .prg into .fxp on the drive and then includes it into the .EXE. And yes, somehow at compile time (even though I set the path to the folder where .h file resides) I was getting the error. Somehow I eliminated the error by copying the same file into the project folder and included it in the project. I will "play" with this again today.
>Thank you.

The .h files do not need to be within the exe. It's only bloat. You might have them in the PJX for easy access, but check them as excluded. It does not matter at runtime.
They must be available while building the exe. The prg's (and anything else compilable) will be compiled into the exe. If you uncheck "Debug Info" in Project Info only the frx will be within the exe, not the (prg) source.

Normaly it is enough to have the header files in search path during project build (and on closing the prg, classes etc. because this will compile as well)

In your case (having the header in path at build and failure) it looks more like the file is doubled somewhere. Or the DEFINE is created twice, what might end up strange.

LOCFILE() might help for duplicate file. Something like

?LOCFILE('File.h')

If a dialog opens, the file is not in path (or in any place VFP looks for) , else the output is the first file found.

For duplicate DEFINE use CodeReference or GoFish and search folder.

To Check at build time:
In your header create something like #DEFINE d_Test * in your prg add a line d_Test. Build (All) will fail if the header file is not found.

This will add a comment in your result :)