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Your computer is more than good enough to run photoshop cs5 so cs3 shouldnt be a problem windows 7 64 bit is perfectly good I would choose it over xp anyday. (but avoid Vista) it sounds like your photoshop is only recognising 2 gig or ram maybe you have a faulty ram stick have you done a hardware test on it. ifd it is not ram then you have something using all your ram up on 1 of my 4 gig ram spec computers I can render 3d projects and still use photoshop effortlessly I would say you need to do a big disk clean up delete broken registry files delete temp files etc and try and create a cleaner computer