For a free program, GIMP is the solution. It's great for a free program. Paint Shop Pro is about £50 or so, and you can get amazing stuff with that, so that's an excellent buy and well worth its money. And then of course you have Photoshop which is probably what, about £800 or so.. I dunno exactly, but that has a lot of amazing features, and plus there are many magazines out for it, or dvd tutorials, both free and paid for ones. I would say there's more tutorials for PS than any other program out there.
So it all depends upon how much you have to spend.
PS is definitely a good option, the only thing is, you'll never stop learning things to do with it. I've been using it for 6 years and still learn something new about it daily. So it can seem like a lot to grasp.
Buy whichever one you can afford. I have CS4, but it's pretty expensive -.- Anything after 7 is decent though. Keep in mind this is coming from someone who designed a $2500 website using photoshop 3 though.
Technically, CS4 is. But many people prefer older versions because of the layout moving about, features being added that didn't need doing so, and many other reasons. It's all preference and what you've used the longest, and what layout etc you prefer the most.
Take PSP for example, Smangii and I both use it, he prefers (I think) PSP X, whereas I prefer X2.
Most people dont like new versions because it means (in a way) having to relearn it.. Not properly, just a few hours of looking around and getting refamiliar etc.