It does.. kinda. Been awhile, but seems like it would load it in, you can manipulate the chroma, color and all that, then save it in whatever (TIFF, PSD etc) and edit it.
This might have been using the Pentax raw format.
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PhotoShop is definitely more than is needed for nearly any reasonable work on photographs. Most cameras come with software that permits manipulation that fits most people's needs; PhotoShop Elements brings together a lot of what PS offers the photographer in an easy and uniform workflow.
My need for PhotoShop is for managing graphics workflow more than photographic. The recent example of merging a series of shots (not properly shot by the photog for use as a panorama) to form a plausible background, then the silhouetting of twenty-one men and women, adjusting their color and lighting so that all of them are reasonably uniform (they were shot on different days in different locations) and making sure their "edges" were cleanly anti-aliased and did not show matting or color fringing from the original background from which each was lifted, then positioning them across the frame in a plausible pose so that the entire image would seem to have been a single shot from a super Widelux is an example of where PS shines. The new CS5 especially so.
It is a very expensive program, but when it comes to that sort of work there is nothing really comparable.