I normally use high-quality, low-compression for JPGs. The sizes are small enough if saved via ImageReady or via Save For Web in Photoshop.

As for whether JPGs or PNGs are better ... it depends. JPGs are more universally accepted by web browsers, so I normally use JPGs for graphics going on web sites. However, PNGs are nice if you want some transparency -- they're like GIFs that way, but with the color quality of JPGs. The only drawback is that some browsers don't allow you to see the transparency as intended. So I try not to use them for web site graphics. I do, however, use them for Cafepress graphics if transparencies are involved.