"GPU enhancements/display driver" error with NVidia GeForce 8600 GTS

I am currently evaluating a demo of Adobe Photoshop CS4 Extended. I am using a NVidia GeForce 8600 GTS video card. When I open the application, I get this error:
Photoshop has encountered a problem with the display driver, and has temporarily disables GPU enhancements. Check the video card manufacturer's website for the latest software.
GPU enhancements can be enabled in the Performance panel of Preferences.
Here's the thing - the NVidia graphics driver I'm using is current! It's version 195.62. And here are the specifications of my video card (which is about a few years old).
I am using Windows XP Home 32-bit SP3 with 2GB of DDR2 memory. Processor is AMD Athlon 64 X2 6000+.
I've read over the functionality that this error message affects, and I'm not sure I understand it. If my video card is using its most current driver, what the heck am I to do? How badly will this handicap my Adobe Photoshop experience? (For reference, I plan on not doing that much using the 3D capabilities of Photoshop - but it may be interesting one day.)
Also, one bug I'm experiencing is that the Layers window is present, but its contents don't appear unless I click on it.
I'm not sure if I'm open to buying a new video card just to satisfy my Photoshop needs. Any help is much appreciated in overcoming this error and enabling FULLY-operational functionality of Photoshop CS4. Thanks!

Here is a link that may help with old GPU's. Also ensure before you update the drivers that opengl is turned off otherwise PS will use the old drivers.
http://kb2.adobe.com/cps/405/kb405064.html

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