Hi Jim,
yes after I imported my .cr2 raw files into new catalog it started to work. Windows 7 still does not recognize them but I can edit them as you said within the Lr5.6 and then export them into .psd or .dng files...as needed.
I bought Lr5 only because I got present - my new camera Cannon 70D and because my older Photoshop CS5.5 raw plugin does not recognize. cr2 files.
Many thanks for your help.
Andrej.