How to Activate the Dimmed Text Tool in InDesign CS3?

Try deleting your InDesign caches. This is not the same as deleting preferences and usually will repair any interface problems (hopefully even with a version of InDesign that is as old as CS3).

To do so:

For Macintosh Users: The User Library folder in which InDesign’s cache files are stored is hidden by default on most Macintoshes. To access it make sure that InDesign is closed and click on the desktop to launch a Finder Window (Command-N). With this window in column view follow the path User>Home folder (it’s the folder with an icon that looks like a house—it may have the user’s name rather than “Home”) and click on the Home folder. With the Option Key pressed choose Library from the Finder Go Menu. “Library” will now appear within the Home folder. Within the Library folder find the “Caches” folder. Within the Caches folder find and delete the entire folder “Adobe InDesign”. I find that deleting the InDesign cache folder completely leads to a lasting change.

For Windows Users: On Windows 7 and above the caches files are hidden. To find them go to the Control Panel and open Folder Options and then click the View tab. Then select “Show hidden files and folders” or “Show hidden files, folders or drive options” in Advanced Settings. Then delete (or rename) the folder at the end of this path: C:\Users\[User Name]\AppData\Local\Adobe\InDesign\Version [#]\<Language>\Cache.

Note: You haven't indicated how old your operating system is. Hopefully it is recent enough that the above instructions will work for you. Good luck!

The most common cause of grayed-out tools and options is that there's no active place for them to work. Make sure you have a text frame selected and that it (or the layer it's on) isn't locked.