Umm...I may be wrong about this, since I use
PS 7 and you have CS, but don't you have to define a path on the image before you convert it to a Custom Shape? I don't think its even possible to make a shape from an image just like that. I mean, think about it, a custom shape IS a path object. Try using the Pen tool to trace the outline of your image, then define the PATH as a Custom Shape.