Photoshop :: Using Ps To Draw Over Scanned Drawings

When I used to use photoshop a long time ago (version 5) there was a technique I used to use to draw over the lines of a picture so that I could colour it how I wished and use the shading and burning tools etc to add more life to a picture. However I no longer know how to do this and I'm on version 7.

Basically it involved the lines tool, I would draw around each line of the picture, then add the end use a tool which made the lines smoother and more curved so it didnt look like it was drawn with a ruler, then it would be easy to select the areas in between each line and colour.

When I try to do this in 7 it creates a layer for each seperate line, and I dont remember whether it used to do this or not. Also I cant for the life of me find a way to smoothen them all out and make them as one whole layer like before, instead im left with many awful lines which overlap etc.

how I can do this effect, or a better way of doing so. I read one tutorial that said go over the lines with the pen tool, but that doesnt work at all, and going over with the brush doesnt leave nice defined lines at all and makes it hard to select the blank areas.

I'm using scanned colour drawings of mine.