I use both CAD and a photo editing program. I use a CAD program where exact dimensions are critical, or where I need a repeating pattern. Otherwise I use the photo editing program. The later provide more fonts and font effects, gradients, drop shadows, etc. that few CAD programs provide.
My article in the January '13 FSM discusses a bit the advantages of each. I use a cheaper program than photoshop, but if you have PS, by all means use it unless you need the features a CAD program provides. Most decals don't.