well, they either start out as .bmp or .gif, but I resize them and ajust them with Microsoft Picture It! Express 7.0, that's when I convert it to (usually) a .jpg, then I add color/texure/crappy shading via Adobe Photoshop CS. Then I post them on photobucket.com and use the "blog" option, and voila: crap.
My recommendation would be to do all your work in a format like .bmp or .tif (or perhaps better yet, keep it within Photoshop CS, and let the Adobe black magicians handle the work for you), then only save the final version as .jpg. The JPEG compression format is notoriously "lossy", and turns up artifacts like what you see in your final products; however, they only visibly appear after repeatedly encoding through JPEG (i.e., saving as .jpg). I'm not sure if JPEG2000 has enough support yet to make that a viable alternative at this point, but I think that if you do that, you'll find the quality of your final result to be superior to what you get now.
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REMEMBER: JPEG last, if at all.
One of the things I've learned in my classes. :-)
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