"Use RAW files with external editor" greyed out for Photoshop CS2?

I've just upgraded from iPhoto 5, and the "Use RAW files with external editor" option in the advanced preferences is greyed out when I select Photoshop CS2 as my external editor (back in the General pane).
It works fine when Preview.app is selected. I can understand that pre-CS2 Photoshop wouldn't be available, but CS2 is capable of editing RAW images.
Has anyone been able to get iPhoto 6 to send a RAW image to Photoshop CS2 using this preference? I've written an Applescript to do it in iPhoto 5, but I'd rather use something cleaner...
15" PowerBook G4   Mac OS X (10.4.4)  

Works great with Photoshop Elements, opens with Camera Raw. The issue is you can't save it so that iPhoto gets the changes.
You have to save it and then re-import. I tried all permutations of saving it in originals and modified folders in the library. No luck. The only thing I didn't try is to save it as a jpeg over the top of the full sized one iPhoto created on import.

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