Hi!
This is less an issue, than a feature of Preview...ok, we could discuss this
😉
Anyway, Preview takes the current selection from Finder and opens it up. So if you want to view all the pictures of a folder with Preview, select them all (shortcut: command-A) and then open them with Preview.
Doing so, will make the Previous and Next buttons "work".
Option #1: Since you are on Leopard, you could just click the first picture, invoke QuickLook (shortcut: space bar) and then use the arrow keys to advance to the next pictures. QuickLook displays, what's currently selected in Finder.
Option #2: Use the freeware Xee, which you can find
here. It offers the behavior, you were expecting from Preview.
How I use it: To simply browse a directory of images, I prefer Xee. To show someone a selection of images, I use Preview.
Hope that was helpful.
/Rupert