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>my Mac is running OS 10.4.11. I understand that this OS will not run PS CS3.
You are massively wrong!
CS3 runs not only fabulously well but even optimally in 10.4.11. MUCH better than in any version of Leopard or any other version of OS X.
As for your issue with DNGs in CS, did you bother to update ACR to version 2.4?
See the detailed instructions on the download page.
>What I need to know is whether or not my PS CS will work with files converted by Adobe DNG.
Of course ACR will, if you correctly install Adobe Camera Raw 2.4.
No version of Photoshop opens raw or DNG files, only ACR does, hosted by Photoshop. But you do need at least version 2.4 of ACR, which was the first to support DNGs.
>I'm trying to avoid spending 200 bucks to update PS CS to CS3
Penny wise and pound foolish. Monumentally. Adobe Camera Raw is gazillion light years ahead in CS3.