Best format to save a pic for uploading?

When I'm working on a texture for SL, I wouldn't save it in something as lossy as PNG. I usually use XCF, the GIMP's native format. It preserves such data as layers and text, which get lost on export to a flat format.

My 2 Cents:

I use The Gimp for all my graphics work in SL. I have PSP & Photoshop, but the gimp makes it very easy to 'fill' with a pattern which is terribly handy when making clothing. On the other hand, I haven't figured out how to curve text along a path in Gimp. Really and truly, it's just preference.

I also use TGA for all of my images. It works for everything in SL, so I don't have to worry about whether I'm using any trans on a given image.

But best of all, The Gimp is totally free.

And in defense of jpg.... you guys are splitting hairs on this image quality stuff. I've compared compressed images in jpg, and I had to put it down to like 20% compression to get any kind of noticeable degredation. These were photographs I'm talking about, and I understand that different formats are useful for different things. But I am sure there is none among us who can look at a texture and tell what format was used based on the quality of the image. The truth is that if you can get it to upload in SL, that is good enough.

-MZ

Photographs compress very well in JPEG -- but just try using it for lineart with strong primary colors!

Even if JPEG2000 does compression, bottom line is if you start with a larger size, after compression it likely will be larger size than a picture starting at a small size.

BMP:
Great for small textures - I use them 128x128 or less for simple patterns that have lines and I want to preserve crispness.
TGA:
Transparency.
JPEG:
All else. How much I compress depends on what it is used for, and I guess it's a balance between image size and quality. Since the Lindens were kind enough to let us preview textures before confirming the upgrade, trial and error has become much more feasible.

Heuristically speaking, I definitely have noticed a difference between load speeds between jpeg and BMP/TGA, regardless of the jpeg2000 conversion.

What I'd like to see is allowing .GIF - this is great for any texture with a minimal amount of colors, as the compression essentially is, "this pixel is color RBG, and so are the next X pixels".

Carnildo explained succinctly how JPEG works. In layman's terms:
JPEG compression looks at a pixel and tries to use the same color for the surrounding pixels. The result is anti-aliasing, a term that refers to the slight splotchiness at edges. However, as pointed out, it's great for pictures. Even at 80% quality picture size can go down 100s of times.

-Hiro Pendragon