The latest ACR version for Photoshop CS5 is ACR 6.7.
For full compatibility with Lightroom you need the corresponding/current ACR version, which by now is ACR 7.3, which in turn requires Photoshop CS6.
"Edit in Photoshop" still works, but you need to choose "Render Using Lightroom". The net result is exactly the same whether Lightroom renders the image or ACR does it from within Photoshop, however some additional options aren't available (such as open as smart object).
Before you get mad at Adobe for not providing "full compatibility" consider that there are new features that the older ACR version simply didn't have.
Yes Adobe is only following its traditional pattern
PS CS = ACR 2.x
PS CS2 = ACR 3.x
PS CS3 = ACR 4.x = LR 1.x
PS CS4 = ACR 5.x = LR 2.x
PS CS5 = ACR 6.x = LR 3.x
PS CS6 = ACR 7.x = LR 4.x
Happens approximately every 18 months. When a new version is launched further update to the previous version is discontinued.
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