I save my projects to and work from an external drive. The Fade, Zoom and Dissolve effects work fine however the Wipes and Iris produce the following exception
SecurityError: Error #2148: SWF file file:///Volumes/My Book/Flex Projects/MostLikeVisualStudio/Chapter02Begin/bin-debug/SimpleEffect.swf cannot access local resource file:///Volumes/My Book/Flex Projects/MostLikeVisualStudio/Chapter02Begin/bin-debug/assets/buckinghampalacesmall.jpg. Only local-with-filesystem and trusted local SWF files may access local resources.
The Flash Player runs in a secure SandBox so what you're trying to do violates that security model, as the error states "Only local-with-filesystem can access..." so if your app is only gonna use local resources add -local-with-filesystem to the compiler options.
Probably you'll understand more reading this: