Why do you think that Photoshop CS3 only works on Vista? I have CS3 installed in Windows XP and it works well. At the school where I teach we also recently upgraded to CS3 on Windows XP computers with no problems.

I teach both Photoshop and GIMP and like both, but Photoshop is a little easier to start with than GIMP. On the other hand, GIMP is free and there's a new version soon to be realeased, so it might be a good idea to check it out, if you want to save some money.