Like the OP, I stayed with PS7 for the longest time until I upgraded to CS3 shortly before CS4 came out. My quitly of life improved five fold with that upgrade. But it's nothing compared to the upgrade to CS5. From CS3 to CS5 they added over 70 new features, and on top of it the programs spent some time fixing all the little things that bugged the crap out of users.
(Side note, Adobe never branded the PS in CS5.5, as CS5.5. If you ever need to know if you are running the "CS5.5" version, it will have a version number of 12.1.)
Now to the big question of the normal version or the extended version. .. .. Well, if you plan on using PS for just SL clothes, and large print stuff in real life, go with the normal version. The 3D paint ability in PSext just isn't worth the extra cost. Even more so when other programs do it just as well or better. If you still want to paint on a 3D object you should try Blender 2.6 (lots of improvements since 2.49, including a UI overhaul), it's free and tutorials are everywhere. Another free program to try is Metasequoia. It looks like it would be a pain, but once you watch a how-to on YouTube you'll see it's really easy. The only problem with Metasequoia is you need to buy a $49 upgrade to get it to export out other file types.
Personally the only time the 3D tool-set has ever came in handy for me has been when I've had a CFH wanting tacky 3D text in a design. ... I can't really think of any features that are in PSext that are really special... better RAW support, maybe.. hum.. come to think of it I've never used the normal version.
Anyway..
If you didn't know, you can buy Adobe products with a monthly subscription.
It's $49 for the normal version, and $75 for the extended version a month. Also you can get a discount for upgrading from PS7. If you upgrade you would need to pay in full, but you'll save $100 regardless of version.
In the end, it's up to you. Good luck, and let us know what you end up doing.