You'd probably have better luck posting this in the Electronics or Computer forums.
I'm not sure about the camera, but you'd have to check with the camera before you can decide what hardware you will use to get it to your computer. Some might use s-video, others might use usb. You have to use whatever your camera of choice uses.
As for software, I think you mean Photoshop 7, and you definitly would not want to use that for video editing. Photoshop is for images. The software you use also depends on what kind of editing you want to do. If you want to just delete some parts of it, rearange shots, and maybe put some text or black fades in there, the Windows Movie Maker that comes with WindowsXP will be just fine. You won't be able to burn to a DVD from that though. Theres lots of free DVD burning programs out there. Check
www.download.com
If you want to spend some cash (or go the illegal route...) Adobe Premier is good for high end video editing.