I believe Photoshop used a 16bit installer up to version 7. A 16bit installer will never run under Windows 7 64 bit, but you have a good chance at running it in compatibility mode under Windows 7 32 bit.
If you have a 64 bit version of Windows 7, I believe you will need to run and install Virtual PC in XP Mode to have any chance of a fully operational 16 bit subsystem. If you are running Windows 7 Professional or Ultimate, you can use Windows XP Mode and Virtual PC.
Windows Virtual PC
http://www.microsoft.com/windows/virtual-pc/download.aspx
Note: you cannot run XP Mode on Windows Home editions. If you are using Windows 7 Home Premium, you would need to use Virtual Box, DosBox or any other 3rd party virtualization program that works with Home Premium. Please visit forums dedicated to these programs for more information.
- "Have you tried turning it off and then on again?" - Roy from 'The IT Crowd' (Emmy award-winning British comedy)