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The current version of Photoshop is CS3 (in numbers version 10) You can only upgrade to this from version 7 and above.
ACR 3.7 is compatible with CS2 (PS9) CS3 uses ACR 4.x and has far more options to develop RAW.
You have the choice to buy a full version of PSCS3 (and don't wait so long with upgrading next time, you will miss a whole bunch of awesome futures in every new version.
And the options to get Adobe Lightroom or Photoshop Elements.
However, all three of it are downloadable as a trial version (although I'm not sure about Elements)
btw, You can't expect to use new technics from the digital revolution in a software application with a version that is about 10 years old... :-)
Or download the free, stand-alone Adobe DNG Converter 4.3.1 application, which does need any version of Photoshop to run, to convert your Nikon D40 RAW files to raw DNG files that can be opened by ACR 3.7 hosted by Photoshop CS2, and even by ACR 2.4 hosted by Photoshop CS.
To the original question, do you have Photoshop 5, or do you have Photoshop Elements 5?
Good catch, Jim. It never occurred to me that anybody would be trying to open RAW images in Ps 5, so I assumed Elements.
Louie: If it's Photoshop 5 you have, forget it. There's no way any version of ACR is going to work, as Jim points out.