I have read that CS3 has issues with all of the K3 Epson printers and will not work well with them.
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Ummm, not mine. CS3 works perfectly well with my K3 Epson printers.
Yes, I too had the "halo" problem before anyone knew it was a problem nearly 18 months ago immediately after installing the Epson driver for a 7800. After 3 days I resolved it with the "generic rgb profile" workaround - that Roy pointed to on this forum. Since that time I have further delved into it for others and due to personal curiosity. At the moment, I believe it is not an issue of being the default printer, but occured after the initial install of the Epson driver software. Until manually changed via the colorsync utility, the driver only looked at one profile location, that is the Epson plugin with its "hidden" standard profiles, and not System>Library>ColorSync>Profiles.
I still don't know for certain, but try generic profile switcheroo routine in the referenced thread and see if your halos disappear - I bet they will.
Good Luck,
Ed