I tried and had decent results with Canon's Digital Photo Professional 1.6.1. I upgraded to DPP 2.0.3 and still had decent results, but not great. Not even very good, really. I'm also frustrated that DPP doesn't support raw files from a Canon Powershot S70, which is my point-n-shoot and backup to my Rebel XT (I'm not a professional).
I have RawShooter premium and really like it. More than 90% of what I usually do with Photoshop can be done in RawShooter premium, and more quickly and easily, too. I really like the RawShooter setup for workflow.
But ultimately I find Adobe Camera Raw and Photoshop CS2 indispensible. There just is no replacement for Photoshop. For example, with RawShooter you still have to have an application to print from, something that supports profiles if you want it to look right. RawShooter is a replacement for Adobe Camera Raw, not Photoshop, even in it's premium incarnation.
I'm not familiar with CS2 versus Elements feature sets. When I decided I needed Photoshop I found that Elements didn't support some plug-ins I needed and that decided it for me. I think even for an amateur enthusiast like me Photoshop CS2 is required. Learning how to use it can be difficult, too, but fantastically rewarding once you're over the initial hump (and it's a big one).
For my money, I'd buy Photoshop CS2 before any other gear, but then I have lenses to cover wide (Canon 10-22), "standard" (Canon 17-85 IS), and telephoto (Canon 70-300 DO IS). So to put myself in your situation, would I give up the 70-300 lens for Photoshop CS2? Yes, without hesitation. It's a "must have".