Actually I'd say the problem is Photoshop. The HP software works and is compatible with Windows XP. BTW, If you want a new software version why not just download it for free.
You say that if you installed the software then photoshop didn't work so you took off the driver to make photoshop work. I'd be guessing that photoshop also uses the microsoft installer (MSI) program. The problem seems to me to be that when the version of MSI is updated to a newer version by the HP software, Photoshop stops working. Did you contact Adobe at all?
Since when does Adobe crashing have anything to do with compatibility with Windows XP? I actually have several HP printers and they are all running on Windows XP Pro. I have a PSC 2170 at home and had a PSC 2210 at the office. Now I've been upgraded to a PSC 2510 connected to my notebook via wireless while its connected to my desktop USB. Zero problems. The problem is either Adobe or some other driver on your system, perhaps an older printer or scanner driver. Some of these can cause problems. I know Lexmark installs a few tasks that kill the print spooler when you try to install a different printer (Microsoft has a KB document about how to shut down the Lexmark tasks). Have you ever had a Lexmark printer (or Dell for that matter since they are the same, and Dell PCs often come preinstalled with these drivers BTW).
<P ID="edit"><FONT SIZE=-1><EM>Edited by m39shadow on 12/11/03 12:41 PM.</EM></FONT></P>