I'd say whatever you're most comfortable with using. Personally I do all my skins with Illustrator as I much prefer working with proper vectors (Photoshop's vectors are pretty lame at best).
Are you using Bunta's templates posted at Master Skinnerz? They're definitely the best for using with Photoshop IMO.
I really only use Photoshop or Illustrator for any 2D graphics work so don't have much wider knowledge than that, but I would have thought you'd have no problems with the LFS templates.. IMO, they're a damn sight easier to use and paint than GTR2 (I gave up with skinning for GTR2.. was easier to model cars and tracks than paint those things! lol.. there's bits and pieces everywhere).
Many people also use Paint Shop Pro. I find it confusing, but been used to Photoshop since about version 6 but as I say, the best tool for the job (any job) is the one you're personally most comfortable with using
Regards,
Ian