install.packages() fails if .libPaths() set

* installing *source* package ?relations? ...
...
** testing if installed package can be loaded
*** arch - i386
Error : package ?sets? required by ?relations? could not be found
Error: loading failed
Execution halted
*** arch - x86_64
Error : package ?sets? required by ?relations? could not be found
Error: loading failed
Execution halted
ERROR: loading failed for ?i386?, ?x86_64?

If I don't set .libPaths() it installs without error.

Yes, since your package set is installed in a library that is not "test".
And you have omitted that library from the search path by changing
.libPaths().

I'm not sure I follow. I thought install.packages() installs into the
first element of .libPaths(), and indeed I get this message:

Installing package into ?/Users/hadley/Desktop/test?
(as ?lib? is unspecified)

Hadley