I tried both. PSD files seems to work fine for me, but I usually put my textures into a Jpg when I'm done working on them because of size issues, and the fact that you don't need the layer information for a poser texture. The only reason I can see to use a psd file is if you were doing a super duper sized texture with lots of sublte color changes. Of course you'd have to ask whould those even come through? Also I could be wrong so anyone can feel free to correct me if they like.