Package confusion

1

I cannot use Classes that reside in the same folder as a Main Class. I get the error 5001:The name of the package…does not reflect the location of this file.

Two .as files are in this folder: \flash tests\packaging.

Here are the two Classes:

package packaging
{
    import flash.display.MovieClip;
    public class Main extends MovieClip
    {
        private var two:Two;
        
        public function Main()
        {
            two = new Two();
        }
    }
}

package packaging
{
    public class Two 
    {
        public function Two()
        {
            trace("I am number two");
        }
    }
}

Im using Flash CS3 so I have a .fla in the same folder, with the Document Class set to packaging.Main
The Classpath in the .fla points to \flash tests

This is the same file organisation as set out by Colin Moock in Esential ActionScript 3.0 for the VirtualZoo example.
But, the only way I get acheive a compile is by removing the “packaging” label from Two.as. OR by placing the Two.as Class in a subfolder of \packaging and importing it in Main.as

I am able to use packages from other sources (Papervision, TweenLite etc) and organise my own utility Classes into folders distinct from a project folder. But I cannot have a project with all the Classes in the same folder as described by Moock.
What am I doing wrong?