The latest version of PHP for Debian 5 is actually what you have there, 5.2.6. Your system is indeed up to date with the latest packages available to Debian 5.
The repository where you’re seeing PHP 5.3.2 is for what the Debian folks call “Sid” – which is the unstable version of their distribution.
It’s not a straight forward process to use Debian’s Sid packages on your Debian 5 server… in fact, I really wouldn’t recommend it
Does an application you use require a newer PHP version? Unless you’re sure you need it, I might suggest sticking with the PHP version that comes with Debian 5.
If you really require a newer PHP version, there are some out there, but you have to be careful when doing those sorts of upgrades. Anytime you move away from standard, tested Debian packages, there’s a risk of breaking things
When Debian 6 comes out, known as “Squeeze”, it will have PHP version 5.3.2 in it.
Debian does an excellent job of not actually stating when releases will occur
That said, Debian 6 recently went into a “freeze” mode, where they stop adding new features so that they can focus on stabilization, with a goal of releasing it soon.
You can read about the current status of Debian 6 here: