First off, if you're using Photoshop CS3 you're limited to a panoramic that covers a field of view that's roughly 180 degrees. That's pretty wide, but Photoshop CS4 can manage an eye spinning 360 degrees.
There's other differences too. For example Photoshop CS4 can join a multi row panorama and even a vertical pano. Photoshop CS3 can't do either of those, although a quick cheat for vertical panos is to rotate the images and trick Photoshop into thinking it's a horizontal image. Just remember to rote the final image back to vertical.
The other major difference between Photomerge in CS3 and CS4 is how wide a lens you can use. I found CS3 was OK with lenses going down to 24mm (on a APS-C camera) but struggled with anything wider. In Photoshop CS4 we have a Geometric Distortion Correction option which allows the use of super wide optics and even fish eye lenses.
So in theory Photoshop CS4 is capable of stitching a full (spherical) 360 degree panoramic. But does it work?
Actually, no. Well ok it does work, but when it comes to full panoramics shot with a 10mm wide angle lens, it's far from perfect.
Have a look at this panoramic I shot today. It's a full 360 pano, so that's everything I could see in front, behind, above and below. 17 images were needed to complete the image.
Click to enlarge
Look closely. Can you see the joins? I'm pretty sure you won't find any. Mind you I didn't use Photoshop, I used Autodesk Stitcher, a purpose built panoramic stitching program.
The location is stunningly peaceful Worth Abbey in Sussex, England and I was lucky enough to be allowed in to take a number of interactive panoramics. Why are they interactive? Well download my virtual reality tour (4mb) to see. Just drag your mouse over the Quicktime "movie" to see exactly what I saw. including the top of my tripod!
Here's the link: http://www.gavtrain.com/free/worth-abbey-VRtour.mov
By the way, vrtual tour images is just one of the services offered as part of my Photography Services. See http://www.gavinphoto.co.uk/