We present initial results from observations of the low-mass X-ray binary EXO 0748-67 with the Reflection Grating Spectrometer on board the XMM-Newton Observatory. The spectra exhibit discrete structure due to absorption and emission from ionized neon, oxygen, and nitrogen. We use the quantitative constraints imposed by the spectral features to develop an empirical model of the circumsource material. This consists of a thickened accretion disk with emission and absorption in the plasma orbiting high above the binary plane. This model presents challenges to current theories of accretion in X-ray binary systems.
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