Yes, I use this combo - personally, I save images as .tif files for max quality and compatibility. A space saving alternative is .jpeg. At its best, quality is fine, burt increasing compression decreases quality ... this usually becomes noticable in the skies first of all (blocky shading of light grays).
Ultimately, best format/compression depends on final application, but I always save at best possible quality - I can always reduce for less critical needs, but can't put back in what isn't there!
Colin K. Work, Pixstel