Photoshop 7 doesn't officially support RAW files. CS is their first release with official support. I'm sure you probably don't want to upgrade unless you have to so there maybe other ways around it.
If I'm not mistaken you just got the Nikon D70. You can try installing Nikon's software which is either Picture Project or Nikon View. For Photoshop CS it installs a Nikon plugin that allows photoshop to read Nikon's raw files. In Picture Project there is also a command that let's you edit in other programs so try that next.
Lastly, if all else fails you will just have to tell Picture Project or Nikon View to save your files as either jpeg or TIFF. TIFF is the preferred choice but either format can be opened in Photoshop for editing.