I created a new image 8.5x11 at 72 dpi for a flyer. I set my bleed line 1/2" on all sides. When I try to print this image I get a message from CS2 that the image is larger then the printable area and there will be some clipping. How can I avoid this?

That setting is controlled by your printer driver. It doesn't mean Photoshop will clip your image, just that the printer driver is reporting it can't print that close to the edge. It might be as simple as the printer driver thinks 8x10 paper is loaded.

Unless your printer knows you are printing "borderless" (and is capable of printing borderless) it will cut off any of the image outside the printer margins. The message you are getting is the printer warning you of this. Like Doug said, it can't print that close to the edge. You can try going to your print setup and choosing borderless 8.5x11 (if your printer is capable of this). Otherwise even if your image is 8.5x11 your printer will continue to warn you about clipping problems.

You can set "scale to fit" in your prnt dialog and if the image is too big you won't lose anything, but the image will print slightly smaller and completely within your printer's margin capability.

Otherwise, if bleeds are something you do regularly, you may want to look into a new printer that prints to the edges or contact a proffessional printing company.

So bascially this is all done by the printer drivers? Right now I only got a HP 4x6 printer installed so obviously it won't print a 8x10. If I want to make a image printable on a 8.5x11 then I need to make the document 8x10 to aviod any clipping? Thanks for all your feedback.