I would definitely recommend Photoshop. Although, I have heard of others using just Fireworks and if it does the job for you then why change?

I think photoshop is more of a all-round program - but for Web Graphics only again i have heard that Fireworks is a big player. The only thing is...is Fireworks discontinued now Adobe and Macromedia have merged? Surely they aren't running FW, PS, Illustrator and Freehand all in one package?

I'm awaiting my copy of CS3 so at the moment can only say from experience that CS2 is excellent. If you decide to shoot for CS3 then you can get student editions (if your still a student) for knock-down prices from adobe and from other student software retailers.