Photoshop improved year over year and left my price range to stay current with the updates.
One freebie I found is Gnu Image Manipulation Program (GIMP). http://www.gimp.org/ After using GIMP at work for nearly a year, I find it suitable for most of my work with images.
Another freebie is Picasa2 by Google. http://picasa.google.com/ Picasa2 cannot draw or paint, but it can organize and add effects.