Seems that in CS4 the default is to embed a psd file. I have been unable to find a way to link if I want to. CS3 seems to default to linking which I prefer.
File > Place
select your file but don't hit OK
at the bottom of the window you will see 3 options:
check link and hit Ok.
Excellent. Thank you so much. Not sure why I missed that totally. It is pretty much right in front of your face. Thanks again.