1) Yes, it'll run CS2. It's running a full copy of Windows and Windows gets to use the computer in full just as if it weren't a mac.
Parallels may be a better solution however if you don't intend to play games.
*You can trade in your Window license on your adobe software and get a Mac license for free. Call Adobe Tech Support and they'll set you up.*
3) I'd recommend it. OS X Tiger uses some hardware acceleration to render the interface and that 256MB of memory will make some of it feel more snappy. It'll have a even bigger effect in the near future as the full UI will no doubt be fully hardware accelerated (Quartz 2D Extreme as it's called).
4) Definitely, give it the full 2GB it can take. You'll be grateful you did.
5) Yes, the PowerMac. Why? Because it can hold more ram (up to 16GB), has PCI-e expansion slots, and more hard drive space (granted by only one additional drive, but there are third party solutions to squeeze three more in there too). Intel based replacements are very possibly coming early next month so if the PowerMac is of interest to you, I'd wait until
WWDC takes place. Like photo570 said though, it depends on your needs.
Since the new Intel Core 2 chips are now out, PowerMac replacements are bound to happen soon. In fact, it's even possible the Core 2 chip could make its way into the iMacs too. Probably not by WWDC though since that is for developers and is more geared for professional market announcements.