A post on the InDesign Secrets blog and some questions I've recently received while on tour on the Discover Adobe Creative Suite 2 Tour made me think about posting this -- some of the content I had posted previously on the CTP-Q Print Planet forum, and there's some other related stuff as well here. On the CTP forum, this topic came up mainly due to issues where a user noticed that after placing certain kinds of images into Illustrator (PSD files), the image ended up being chopped up into pieces, while it was not happening when placing other image files (TIFF files).
First, let's talk about how the TIFF format might be more beneficial than using PSD or EPS when placing art from Photoshop into Illustrator.
Illustrator is quite an old application and while a lot of the internal code has been rewritten and updated over the years, a lot of the old code is still there as well. Keep in mind that Illustrator has over 5 million lines of code, so it's impossible to rewrite the entire application at once -- but portions of the code are rewritten over time. One example is the text engine which appeared in version CS (although the rewriting of that text engine actually started 5 years prior during the development of Illustrator 9).
In early versions of Illustrator (we're talking version 1.1 and 3.2 here), Illustrator wasn't really built to handle large raster images (and there was little reason to imagine it should), and so when large images were placed into Illustrator, those images were chopped up into smaller pieces. Why? Because in those days, programs were bound to linear memory allocations. Remember those? If AI would request a huge block of memory when it placed an EPS file, it would be very hard to find a block at that size, and that memory wouldn't be released and would result in a waste of memory. By chopping the image up into smaller chunks, Illustrator could request smaller memory allocations and better manage system memory and its internal memory.
When transparency was introduced in Illustrator 9, it was realized that raster components would be playing a much larger role in Illustrator and therefore, a new architecture was put in place to allow Illustrator to internally chop up a file for better memory allocation control, but that wouldn't result in the image actually being chopped up in the file for printing. I believe that this process also got better with the enhanced memory handling that were made possible with the release of WindowsXP and MacOS X.
In any case, even though the architecture for this exists, the functionality must still be internally hooked up and optimized to work with each kind of file format supported in Illustrator. It appears that TIFF files are using this new architecture, but PSD and EPS haven't been moved over yet and are still using the older method. Adobe is constantly updating and rewriting code in each release and I know that this issue is one of their priorities. I'm sure they will be addressed in future versions and that more of these file formats will be hooked up to the new architecture.
Remember that you never see these things happen in your Illustrator file itself because you're always working with private native Illustrator data. These issues only occur in the EPS or PDF portion of the file. (If you don't know what I'm referring to, try to search for a post I once made that details what's inside of an Illustrator file.)
If your Photoshop file contains transparency, layers, and spot channels, you'll find better support using the PSD file format. But for normal TIFF images, Illustrator has better ways to handle it...
... but since we're on the topic of TIFF files, here's something that's been popping up recently. Apparently, users have reported that when placing TIFF images into Illustrator, and then updating those TIFFs -- during the update process, the TIFF images FLIPS! The user must then go in and manually flip the image back. How odd. While I haven't been able to reproduce this myself, enough people have mentioned it to me (and I've seen such discussions on the Illustrator User to User forum) that it seems such a problem exists. So here's my ask... if you have experienced this problem before and can reproduce it, please post a comment here describing the behavior, and if possible, use the email link on this page to email me a copy of the file. I'd love to get to the bottom of this!
Overall (and I made this point on the InDesign Secrets site as well) -- each job is different, and you need to make decisions on what file format will work best for the job at hand :)