It's not that simple. We all do different things in After Effects and we all have different needs for our outputs and different collections of third party products. And hardware and operating systems.
Go to Adobe.com and read the list of features. Read it very carefully. Does it look like CS3 will help you do your jobs in AE better or faster, will you have more fun? If so, buy it. If not, wait for CS4.
This is my standard sigfile so do not take it personally: "For crying out loud, read the freakin' manual."
I've just played with CS3 for the first time, and I've gotta say, "WOW!"
Things that used to take me hours now take minutes, thanks to the new Puppet tool. No more do I have to take a file into photoshop, cut it up, place each piece on its own layer, import to AE, move anchor points, then animate. A few puppet pins, and start animating, followed by a few final tweaks.
Haven't played with shape layers yet, but in my opinion, the Puppet tool makes the switch worthwhile.
I got a project file from my buddy who uses ae8 but when trying to open it in ae7 it says something like unable to open as wrong version or something similar, so if i upgrade i'll have to start all my work again, so my question is really should i upgarde now or stick with ae7? as it seems if i stick i'm losing out in the long run future as it were.
You CAN open AE7, 6.5, 6, 5.5, etc projects into CS3 (AE8), ...but as you have found you cannot load projects from newer versions of after effects into an older version of after effects (i.e. in your case taking a v8 project and trying to load it in v7 of the software).
It might be a pain but it also makes sense since if you've used something like puppet tool in ae8 then load that project into ae7 it would get all confused and spit errors at you, ...but having said that, software such as Shake that use txt based scripts are great as you can load newer versions into older versions of the software (if it uses nodes not available, you just get errors for nodes that are bad, then delete the lines that contain them in a txt editor to get the script running)
If you upgrade you should have no problem in loading projects you might have created 4 years ago (let alone in AE7 a month or two ago), ...as has been said above the only real problems come with some 3rd party plugins that might not be compatible (but check with the manufacturer of those plugins to see if there is an update, could even be a free one if you're lucky).
If you are worried, download the 30day trial and give it a test.