With Photoshop CS, you can use 16-bit throughout the workflow. I capture photos mostly in large/fine jpeg which is 8-bit. Before I start my editing, I convert the file to 16-bit. (go: Image -> Mode -> 16-bit) I get fewer gaps in the histogram (combing) and therefore less image degradation during editing.
I save the edited file usually in 16-bit 'psd' format. To save as jpeg for webposting or email, you need to convert back to 8-bit first.
For my case, it its casual snaps I leave them in jpg and burn em into a CD when I get home. This will be 8bit.
If I am doing something serious, I would shoot RAW and convert to 16bit. You get less image degradation. You can clearly see this when doing a levels in PS CS. The 8bit file will show gaps (ie no image detail) while the 16 bit graph is smoother.
If I already shot in jpg and I need 16bit I will go with robert's workflow which is pretty good too.
The diff is when you're doing major contortions at the extreme ends of the curve, trying to rescue shadows or (more rarely) highlights. Try both 8 and 16bits with a picture where the exposure is ok but there's a patch of shadow where you're trying to 'boost'. Should see a diff btw 8 and 16bits easily.
What ST1100 says is right. If you do an extreme (very steep) curve, there will be less visible contouring effect in 16-bits compared to 8-bits in the region of the steep part of the curve. But how often do we perform extreme curves on our images?
For normal photo editting, yes you will see differences in the histograms (combing effects) when you do it in 8-bits and 16-bits, this means image degradation in the images, but can our eyes notice any differences?
Can you tell any differences between a 7-bit grayscale image with an 8-bit grayscale image?
So like in photography, whether to edit in 8-bit or 16-bit depends on what you want. There will be a trade-off between processing time and final result. The question you have to ask is whether the improvement (in any from your eyes) is worth the additional computational processing? Saving in 16-bit for future usage may be advisable, but remember, not only would you take more processing power, you would need more hard-disk space as well!