This morning I rang the Epson US about this issue and as we were speaking I appear to have resolved the issue within Photoshop 5.1 of the 'Print Settings' button not activating when 'Printer Manages color'. (on Mac, Epson Stylus Photo R3000)
It seems to get round this issue you have to go to 'Photoshop manages color', then hit Print Settings, and then when that dialogue box opens hit 'Save' (it seems regardless of what details show there). Go back to the main print dialogue box and set 'Printer manages color'. Only then it seems the 'Print Settings' box will activate allowing you to go to the drop-down menu and select paper/greyscale or colour etc, but you have to 'save' under 'Photoshop manages color' before this will work.
Epson said they will alert the Epson team about this bug which seems to be a driver issue and will have the bug fixed on driver updates.
I have asked Epson about whether they recommend installing the Apple supplied EPSON Printer Software Updates or not. This is their reply 'you can use the Apple updates if you like, it is your call as Apple updates their OS there may be some changes that are necessary. If the printer seems to be fine then you have the option of not updating. If it's not broke no need to fix it.'
Anyway, it seems the original problem is now solved.