When you choose "Edit in" it will give you a message warning you that CS5 ACR isn't compatible. You need to check "Render in lightoom" not "Open anyway". If you don't get the message, it may because you've checked "don't warn me" previously, in which case go to Edit, Preferences, general tab and hit "reset all warnings".
The compatibility problem will be fixed in ACR 6.7 (now in pre-release "Release Candidate" form that can be downloaded) but full compatibility will require ACR7 in Photohsop CS6, when it's released.
Thanks for this..... having posted this, I then found some links to the same questions, and did what you said, and realised I had checked the don't warn me box.....
I'll wait for ACR 6.7 to be made available naturally... maybe keep using LR3 till this is available......
I can't understand why this has been released with the knowledge that it just won't work properly without these upgrades. I had no plans originally to upgrade to CS6, but it's looking like I might HAVE to - if I want the full compatability.
Hey ho.... but thanks for the help CS5 Simon.
Well, depends on your point of view, but I'd say it does work properly!
You don't have to have compatible versions of LR and CS provided you render in LR. I didn't upgrade CS3 until the beginning of last year, and was happily editing in CS3 this way until then. Given Adobe's new upgrade policy which means you can never miss an upgrade, I may never upgrade Photoshop again, and will forever be editing this way in future.
I was greatly confused by all this for a while, but think I finally figured it out, thanks to CSS Simon and others here (I'm new to Lightroom, having only used Ps/ACR previously).
What happens is that "render using Lightroom" doesn't involve ACR at all. It goes straight to Photoshop (and puts the rendered file alongside the raw). The other option, "open anyway", renders the file through ACR. But ACR 6.6 and before can't read PV2012, that's why you need to install the ACR 6.7 Release Candidate, which can (although it doesn't give you access to the 2012-specific sliders).
Another thing that tripped me up at first was that no Lightroom edits at all would show up in Bridge or ACR, even with ACR 6.7 installed. I finally discovered that I had to set Lightroom catalog settings to "automatically write metadata changes to xmp" - otherwise all Lightroom edits would just exist in the Lightroom catalog and not be visible to other applications.
This is of no importance if you only use Lightroom, but it certainly is if you have a mixed workflow with Photoshop and Bridge.