Hello Grassgrown,

The process works like this:
- inside Xara select the photo you want to trace
- go to menu Utilites-> Bitmap Tracer...
- the Bitmap Tracer Dialog appears, use the sliders on bottom to adjust the tracing settings (if needed) and press the trace button
- when you are happy with the preview, press insert button
- as soon as you press insert button the vector objects are placed in the canvas as a group, as Gary pointed out
- you should now have the original bitmap you started with (below) and the new group of vector objects on top
- if you want to export the traced group as a PNG to insert in Photoshop, select it go to File-> Export PNG...

If you still have trouble post again.
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