Chailynne, I checked with JASC, and they said the problem is that Adobe changed the FFS (File Format Specs) and they hope to have a fix in the near future...

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Excerpt of JASC's support response:

I cannot open Photoshop 6 images in Paint Shop Pro 7 even though the PSD format is supported. What am I doing wrong?

Because Adobe changed their File Format Specification with the release of photoshop 6, Paint Shop Pro 7 does not have the support needed to open this file type. We are currently looking into this issue and hope to add this support in future versions of Paint Shop Pro.

Looks like you may need to try using an older version of Photoshop...

:)
retrocity