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Photoshop has limited RAW processing capability (Through ACR) but very in-depth image editing and manipulation capabiltiy.
CS5 and ACR 6.3 to me seems like it has as much, if not more RAW editing ability?? I thought LR3 used the same RAW converter as ACR?
Neither... both... Really, it's apples and oranges. They're two different programs with two different purposes. Lightroom is meant specifically as a RAW editor with cataloguing functions. Photoshop has limited RAW processing capability (Through ACR) but very in-depth image editing and manipulation capabiltiy. My opinion is that Lightroom is much more useful for most photographers, while Photoshop proper is of greater benefit to graphic artists and those who do more artistic post-processing.