I had the same problem this is what I found out;
try this link for basic info. it's only two pages of pdf

<http://www.digitaldog.net/files/CSPhotomerge.pdf>

First I think you must pull all the photos individually into the narrow white strip over the main window, click perspective, then drag two or three pics into main screen. they should work and you can see what you are not missing, but it usually breaks down after about five or six pics. It doesn't seem to be able to create a full cylinder, only a 180 degree view. I only have elements 5 but I think it is similar to CS2 photomerge.
This may not be important or of interest for your case, but the reality is that if you, like me, were trying to do a 360 degree quicktime vr pan, ie a spinning, on screen, interactive panorama, photomerge is fussy to the point driving you mad. plus you need extra software to convert saved file into usable vr file. if by chance you have a canon camera (or can find someone who has to do it for you)you may have a utility called PhotoStitch buried in the ZoomBrowser software(ImageBrowser on Macs) that came with the camera. The interface looks like windows 95 but it is simplicity itself to work with and produces almost perfect VR movies, automatically, and expertly blended, on every panorama i tried, well, except one maybe. This includes indoor ones which cause most of the problems with their dramatic changes in perspective. All you have to do is remember to save in the VR format in the save options. let's hope Adobe slip Canon a few $$$ so it can be integrated into future releases. It is one of my few problems with an otherwise great product. i was lucky that i had a canon and had all the software i needed without knowing it

p.s. if you like VR panoramas try this site it is amazing. it is the reason i said "i must make one of those". it also gives tips on making them.
<http://www.panoramas.dk/>
SORRY IF I WENT ON A BIT!

Rick_Sustek

Replied in the following topics

cylindrical mapping in photomerge, what is it and why can't I select it