Editing in Photoshop Elements 4.0 from Iphoto

I want to edit photos in PSE 4.0. Iphoto help says for me to choose Preferences, under edit photo, select "in application". I did so and selected PSE 4.0. In doing so, a secondary screen opens and wants me to select an internal folder of PSE, which creates another screen opening, etc, etc. This goes on until I run out of secondary screens. At no time can I choose the Open button.
What am I doing wrong?
Macbook   Mac OS X (10.4.7)  

It sounds like it is not recognizing the PSE is a package. Do you have any problems when trying to run Elements directly from the Finder? Also, can you select a different application-Preview, for example?

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