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Ok, I downloaded the free trial for this today since we had so many questions on PSE lately. PSE5 is a bit different than PSE4 so I can see why you have been confused.
To add a dropshadow.
Select your layer. Then go to Artwork & Effects. Then go to the third little icon in the middle. (I got screen shots since I am not sure what it's called). Once you are on that. Select Layer Styles from the dropdown menu on the left. Then select Dropshadows from the dropdown menu on the right.
Then I picked the soft edge dropshadow, but you can play around with the different ones to see which you like. Then click Apply. (Make sure your layer is selected or it won't work.)
Screen Shot 1
Ok, once you have put on your dropshadow then you can edit it if you want.
Go to the top and select Layer > Layer Style > Style Settings
Screen Shot 2
Ok, once you get to the next screen then you can change your settings there.