CS4 Photoshop and .NEF (Nikon) images

My Photoshop CS4 opens images shot in Nikon Raw (.NEF) as .jpg files. Why?

Hello,
I am running Snow Leopard on my Mac. I have my old photos from my D60 stored in iPhoto. I'm trying to get them into Lightroom but that's another headache issue.  >:(
I don't use the Bridge. When I want to open a photo in Photoshop, I select File>Open, then access iPhoto. I then double-click the event that contains the image I want so I can select it. At the bottom of the dialog box, "Enable" and "All Readable Documents" are shown, as well as "Format" at the lower left of the same dialog box. What I see for the "Format" is "JPEG" even though I have been shooting strictly in Raw (NEF). I don't even choose both JPEG and NEF, which is an option I have. Is this what I should be seeing there?
I then change the "Format" from "JPEG" to "Camera Raw" to do some editing that way. I checked the Plug-in section of Photoshop and it says I have Camera Raw 5.0. I found some additional updates like 5.1, 5.2 etc. but I've tried downloading those and the version shown never changes. I also found some updates to Photoshop as a whole  so I went from what I had at 11.0 to 11.1 via a download I found. I saw there are more after 11.1 so I will be updating those. Why I didn't get these long ago, I have no idea. Will getting me to the latest version of Photoshop CS4 help this? Or am I not undertanding how this all works together? I got CS4 back in 2008 (I think) and haven't used it much until I got back into photography about a year ago. And a month ago I got Lightroom but once my images are downloaded there, to Lightroom, I can't even open those in Photoshop at all. They are "grayed out" and I can't get at them. 
Again, I'm just wondering if I'm not understanding how all of this works.

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