There’s a really great, but perhaps little known feature for content creators using the Phoenix Viewer called Local Textures. Using local textures allows you to link SL to the texture on your hard drive. This means when working in Photoshop you can re-save out your .png or .tga file and it will be instantly updated in-world. The only exception that I have found to this is when textures are actually worn on the Avatar as layers, in this case a re-bake is necessary.
There are a couple of steps to using local textures, but thankfully they aren’t too complicated so I’ll quickly outline them below with the use of screen shots.
1) Rez your prim or wear the clothing layer you wish to work on.
2) Edit and go to the texture tab or edit appearance, then click the texture swatch.
3) In the texture chooser that opens up, select the Local tab. (Red arrow)
4) Inside the Local tab, select the Add button and then find the texture on your hard drive using the window that opens up. (Blue arrow)
5) Press the Browser button and a new window will open up.
6) Inside this window press the More button (this button says Less when the More tab is already opened). (Purple arrow)
7) Inside the More tab, check the option that says Keep Updating. This creates a “live” link with the texture on your hard drive and will constantly update the texture inworld to match any updates and saves you make. (Green arrow)
That’s it! You can close out your windows now and get to work. Oh, and when you’re done, don’t forget to upload the texture in the normal way too. These are technically just temporary reference textures.
Also, this feature is available on the Imprudence viewer, but since I’m a Phoenix user I’ve only outlined the process for using it with the Phoenix viewer.
Good luck :)