Try Adobe's Photoshop Elements 2.0. It's nowhere near as functional as the full-blown Photoshop 7, but it's a fraction of the cost ($99 US) and pretty good for basic editing. You can download the trial version from adobe.com to see if it suits your needs. Also take a look at Photoshop Album. It has very basic editing tools but it's a neat little app (~$50 US).
I'm an adobe freak but...
Also check out Photoimpact at ulead.com (trial download available). It's a powerful package, something I started out with when I first became interested in graphic design --and still dabble with on occasion. It sells for about $85 US. In terms of power/functionality, I'd rate it 3 steps below Photoshop. It has many of Photoshop's tools and features (including layering) but lacks 3rd party plugin/filter support and file type support is more limited than the high-end titles.
Not sure if you're interested in a program to organize your pics, but Adobe Photoshop Album is also something you might consider. It's a newer application from Adobe, and aside from managing and archiving your pictures, it borrows some good editing features from Photoshop, such as: red-eye removal, cropping, resizing, and some other effects. I think it's only around $50 too, so not a bad deal for all that.
Just another Photoshop recommendation here. I've used Ulead PhotoImpact for years and always thought Photoshop a little deep and difficult until a friend of mine started to guide me through some of the wonders of this fantastic program. PhotoImpact is still much easier but Photoshop is the absolute mutt's 'nads.