Before drop shadow filters were added to Photoshop, we had to make drop shadows the ‘old-fashioned’ way. That application will work for us here, in order to make our photo-filled letters look like they were placed on top of the paper instead of behind it.

• First, turn your type layer on and select each letter, by holding your Shift key and clicking on each letter (or Ctrl-Click on the 'T' thumbnail icon in the Layer Palette of your type layer). Then turn the type layer visibility back off. 
  

• Choose Select > Feather. This will bring up the ‘Feather Selection’ box, allowing you to enter a feather radius. The higher the number the fuzzier your selection will be.  I’ve chosen 10 pixels. Click OK. You probably will not see a change in your selection at this point, but you will see the effect of the feathering in the next steps.

•  From your Layer Palette menu, create a New Layer (or click Layer>New Layer or click on new layer icon in Layer Palette).

 

• Make sure your new layer is selected as the active layer in the Layer Palette. Select Edit > Stroke from the main menu. This will bring up the Stroke dialog, allowing you to choose the specifications for your stroke. Since I’m using mine to make a drop shadow, I’m choosing 2 pixels width,  color black (which will spread out much wider and softer because of the feathering we did to the selection). Location and Blending can be set to your personal preferences, as well. I chose Outside.

• Now that the stroke is there, you’ll need to clear away any of the feathered stroke that is inside the edge of the letters, as we only want the appearance of a feathered drop shadow on the outside). To do this, select the type layer again as in the first step. Do not use the same selection that you used to make the stroke, because the feathering has modified that selection, so it will not work for this step. A new selection of the letters is necessary to preserve the drop-shadow effect.

• Once you have all the letters selected, turn off your type layer visibility and select the Stroke layer in the Layer Palette.

• Press Delete or Backspace key (or Edit > Cut [Ctrl-X]). This will delete any stray pixels that are inside the edges of your letters, leaving only the outer part of your ‘drop-shadow.'

• Enjoy your 'old-fashioned' drop shadow!