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How should I implement this in PS CS3?
I can't speak for CS3, but I suspect that the fix may have come later than that version. I _think_ I recall first noticing the feature in perhaps CS4, when I first opened some raw files in ACR and watched it map out the hot "red" pixels that were found in a few places on my sensor. Since that time I have never seen them again.
It may be that you need a newer version of the program. An less expensive alternative, though it can have its own set of complexities perhaps, might be to get the newest version of Lightroom, which will do the same thing, and use that to do your raw conversions.