TIF or PSD are perfectly adequate for working with. The problem with PNG is that the file sizes are substantially larger than JPG therefore requesters and restorers have to put up much smaller images to meet the 500kb limit (unless they use something like Imageshack or Photobucket).
Compression is the main problem. I work in PSD and I only convert to JPG when the restoration is completed and I then upload to Imageshack. I always keep the final PSD, layered image for a few months after.
As has been stated on the Photo Board, time and time again, restoration of an initially highly compressed image will never produce as good a result as uncompressed ones. However, not all members are as adept as some of us with scanners and compression and dpi, etc. and we have to work with what is produced.
Gadget