Converting from CR2 to DNG

I have Photoshop CS3 and unfortunately the Image Raw does not appear capable of being updated to a point that it can read the files from either my G10 or 5DMk2 (at least from what the Adobe site says). I imagine that many of you had a similar issue. It looks like one way around this is to download a DNG converter. I have done this, but the resulting DNG files look strange (sharp lines are "pixilated"... look oversharpened, areas are grainy, etc.) when the shouldn't (ie the jpeg version of the same picture looks fine). Do others have similar issues with DNG conversions? Did everyone just upgrade to CS4 (I'm not 100% opposed to this but would prefer not to purchase my 4th version of PS)? Any other solutions to this issue that others use? Thanks in advance for any light you can shine on this issue.
Cheers,
Nate

You can use lightroom 2.X to do the conversion. That's what I'm doing. The lightroom upgrades are much cheaper than the PSCSX upgrades.

Converting to DNG is a great way to extend the life of CS3 and shouldn't introduce any degradation at all.

*EDIT*

I deleted my suggestions as I believe Mr. Coalson figured it out.

DNG can contain previews, in JPG format, at varying size and quality. When you're converting native camera raw files to DNG pay attention to the preview settings.

Regardless, the resulting DNG file will always contain the full raw data from the original capture.

How the DNG is rendered and displayed is dependent on the software being used to view it.

I have had no issues with DNG viewing on CS4. I select DNG with a large Jpeg while converting.

I'm still using CS3. My wife's T1i is not supported by it, so I process the RAWs from that camera that were shot before the camera was bathed in salt water using Canon's DPP and converting to a tiff. DPP is not as nice as Adobe RAW but I'm not about to get the CS4 upgrade, maybe CS5 when that comes out.

I use the Adobe DNG converter for my Canon G9 and really haven't noticed any problems? I have the CS2 version of PS. I group the the converted photos into files and then use PS Bridge to preview and open the photos. Seems to work for me.