Solution: Un-install Flash Player 8 and plugins
This is a quick (well depends if you have 40 minutes) fix that worked on my WinXP machine.
1. First the problem (for me) were installed Flash 8 player and plugins. Trying to de-install did not work as apparently they needed a network deinstaller.
2. Microsoft to the rescue (it does happen!). Went to http://support.microsoft.com/kb/290301 and downloaded the Windows Installer CleanUp Utility.
3. Ran the utility and deinstalled the Flash 8 players!
4. re inserted the CS3 DVD and asked it to repair my existing installation.… amazing … it worked!! Really slack programming from Adobe though and I know it will cause a lot of unnecessary work for lots of people.