Unfortunately PSP has never been very good at handling RAW files, and they tend to be a bit behind with new models. At one time Rawshooter Essentials was bundled with PSP, but that's history.
Unless you want to upgrade to Adobe's latest offerings, either Canon DPP or a third-party converter are the best options.
EDIT - ACR = Adobe Camera RAW. I don't know about this, but you may find you have to upgrade to CS3 to get the latest ACR which supports the 40D. ££££££££, but there is another way....
