On a recent trip to France, I shot this panoramic with the 40D, 24-105mm lens. The lens was set at 28mm, shot vertically,handheld, manual exposure, raw. I was approximately 200 meters away from the castle and the panoramic is stitched with 5 shots.

In CS3, I tried all the different stitching options (automatic, perspective, interactive...) and they all resulted in perspective distortion. The roof line is not straight, the windows are not spaced evenly...

Is 28mm too wide for stitching, resulting in perspective distortion?. Am I too close to the castle, thereby exaggerating the perspective distortion? Is there anything I can do in CS3 to fix it?
thanks.

The photoshop panoramic stitching tool is pretty crude, especially for architectural stuff where perfectly straight lines are essential. That is a tough shot to stitch well because you have a portion of the building that is straight-on and then the part to the right is falling away from the viewer toward infinity. Photoshop doesn't handle this well and doesn't provide the configurability to address the problem. You can distort the image to fix the problem, but the better solution would be to get a more full-featured panoramic stitching software like PTGui (that is the one I use).

The photoshop stitching tool works well when you are looking straight-on at something, or you are photographing pure landscape without any straight lines to look odd. Also, the photoshop stitcher is very slow when you get more than 3 or 4 images in the stitch. Your quest for perfection means that you have graduated past CS3 stitching.

You'll always get some distortion using a relatively wide angle lens close to the subject, and CS3 isn't as good as some of the specialty tools at dealing with it. Buildings are of course the toughest because you have all those rectilinear shapes. A relatively easy fix is to apply edit>transform>warp, and tug the corner 'handles' until everything lines up. This works well enough for me.

Exactly.

Decent stitchers (those based on Panorama Tools, like PTGui, PTAssembler, Hugin) provide full control over the stitching (specifically over the warping), the selection of different projections and ways to specify vertical, horizontal and straight lines.

More labour, better result.

Much appreciate your comments. I will look into PTGui.

Have you tried the WARP tool in CS3. It might be tedious but one can accurately remove the bend in the roof line.

The rectilinear = "perspective" should give you the correct result... but as said, if you can't choose yourself the center point (ie vanishing point) yourself, results can be errr... unexpected. Try a real stitcher.

Of course, with such a wide angle of view in the final image, there will still be some visual oddity in the extreme right roof windows (which are seen from the side, while you try to render them as seen from the front)... not to mention the fact that rectilinear perspective enlarges this area with a significant amount, generating a fair loss of sharpness.