That's strange, because Photoshop CS3 can definitely open, edit, and create bitmap (.bmp) files.
How exactly are you having them create files? If you are having them open a file, especially if you saved it from the web or from another document (like Word, Publisher, etc), it might automatically be opening it as a .bmp, in which case it will save it that way.
If you add any layers to a new document, Photoshop should automatically try and save it as a .psd file if you do a "Save As..." instead of just "Save". The only thing I could suggest is to do a "Save As..." every time (Shift + Ctrl + S is the keyboard shortcut, to save time) and make sure the File Type is .PSD