I'd use InDesign to do this job - it makes this kind of layout incredibly easy, and if you change one photo for a better version in your folder of photos, InDesign will notice and allow you to update the document. In InDesign CS3, you can put frames inside frames inside tables, or tables inside tables (the latter is new in InDesign CS3). Much of my InDesign work involves grouped or nested frames or tables to some extent.
However, you haven't got any other Creative Suite programs (I have Creative Suite 3 Design Premium - Photoshop, Illustrator, InDesign and Acrobat are staples of my workflow, as is Lightroom which you have to purchase separately - I keep meaning to find the time to get fully into Dreamweaver and Flash), so it's a case of doing what you can with what you've got. Smart Objects would probably make things easier, but you haven't got those in Photoshop 7. I'd start out with guides to give you a layout, then you can import and scale the pictures and place text correctly.
To be honest, Word may be an easier option - but it's not colour managed and some things always feel like a struggle in Word, particularly nested tables.
Meanwhile, Suzy, have you thought about upgrading to Photoshop CS3? Adobe have introduced a 'three versions back' policy from CS3, so you can only upgrade Photoshop 7, CS or CS2 to Photoshop CS3. If you don't upgrade your Photoshop 7 now, you'll probably miss out on the opportunity to do so.
Some people have managed to upgrade older versions of Photoshop to CS3 by buying a Photoshop CS2 upgrade, and getting a free 'post announce' upgrade from Photoshop CS2 to Photoshop CS3. However, the window for post announce upgrades will close soon (if it hasn't already - check with Adobe), so this route is about to disappear.
I've never really been an Elements user, but I don't believe there's much in Elements that isn't implemented in a more complete way in Photoshop CS3.
David