Thanks for your suggestions. I think I have solved it but I have no idea how it started. I did the usual things such as re-install PS 7. No difference. Un-installed a piece of software from the previous day as there might have been a conflict. No difference. I then tried the System Restore for Windows XP to earlier dates. None of them worked (so there's another problem to be sorted).

Finally I opened PS and went to Window>Workspace>Reset Palette Locations. All the different palettes appeared and when I dragged Layers and History up into the palette well hey presto the arrowhead had returned. In the first illustration the layers palette is actually covering up the palette well so we can't see the layers arrowhead.

Again thanks for your suggestions.
Cheers
Jack