Does anyone know of any free or cheap photoshop filter that will do the basic morphological image processing operations. In particular I need the grayscale version of erosion. I can't imagine that such a photoshop filter doesn't exist, but I can seem to find one.

While you're waiting for a reply, you may want to look at the 'Maximum' and 'Minimum' filters (found under 'Other'). In a two-color black-and-white image, 'Maximum' = Erode, and 'Minimum' = Dilate. (Caveat: This works in the inf-norm (level sets are AABBs), not the 2-norm (the Euclidean norm; level sets are circles).)

(You can always improvise with the Expand/Contract selection modifiers as well, but I know that'd be extremely clunky.)