For a small project I spend 4-5 hours in Adobe Fireworks, then upon approval (hint: very important if your client doesn't worship you like 37signals) I build the pages out in real HTML/CSS/JS etc.
My sketch/mockup step is digital, I don't use dead trees.
Alaskamiller is right on, Photoshop is the wrong tool for the job.
The ability to do drop shadows on text and use all sorts of fonts and apply a motion blur and lens flare and opacity and all that doesn't translate well to the Web.
It's very frustrating as a Web developer to have someone send an over-Photoshopped mockup that won't work well as a functioning website.
They code HTML by hand because it's part of creating a domain language for the application - the interface drives the data model.
Maybe what you should take away from this is that it's better to do your own thing, rather than be a slave to clients.
What the..? Do your own thing instead of listening to your clients huh? Sounds like bread winning advice!
Sarcasm aside, I agree to a certain degree with the parent post - We do work for individual clients and design selection is their choice, since, drumroll, thats what they are paying us for! You can definitely help them out with suggestions, but ultimately your job is to make the client happy - If you are running your own company (or consulting) servicing clients, I'd say that is doing your own thing.
Clients != Customers, which was precisely my point. Clients and consulting is a linear growth curve, and difficult to grow into much of a business: add more clients and you have to add more people to do work for them. Customers and products (ala 37signals) means a hyper-linear growth curve, and a nice business.
A "startup" as most people mean it here is not a consulting shop. Clearly, if you are a consulting shop, you need to listen to your clients.