Photoshop?
#3
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I think it kind of depends on how much experience you have with photoshop. If you've got limited knowledge it might be a bit easier to work with Version 7.0 as it has less features than the most recent CS2. Its been a while since I've played with CS2, but seemed like it had even more extra stuff unnecessary for a novice. Just my opinion as im by no means good with photoshop.
#4
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CS2 should be fine. If you can follow instructions you shouldnt have problems. Ive never used photoshop and I was still able to find how-to's online and make a few sigs no problem.