This is where we need some clear guidance from Adobe on exactly what we need to do, to get Photoshop working again. These discussions are not definitive, but something along these lines might work. This link, Work around for app that asks fo SE 6 when SE 7 is installed and Running Java Apps on OS X with Only JRE 7 do seem to offer some ideas on how to fix this problem, though for 10.8.
Updating to OS X 10.8 does not appear to solve the problem according to comments here and here and many others.
Ok thanks I understand now that Photoshop doesn't use Java, but knowing this has not helped solve the problem.
