If you are not prepared to upgrade your Photoshop 7 to CS3, DO NOT UPGRADE TO LEOPARD.

Photoshop 7 and OS 10.5 are not compatible. When Adobe released Photoshop 7 in 2001 as a Universal Binary for OS9 and OSX they had no idea that Apple would be switching to an Intel chip in 2006. The release of Leopard is also the end of the Classic environment, this may or may not be the reason Photoshop 7 does not work in Leopard.

Keep in mind that Photoshop 7 is the last version you can upgrade to Photoshop CS3 since Adobe changed their upgrade policy to 3 versions back. If Adobe keeps this policy owners of Photoshop 7 will not be eligible to upgrade to Photoshop CS4.