Do you set your picture settings all the way to the max.

For normal photography - yes.

Someday you will want to do something special with some of those shots you took .... way back when.

You can always make a photo smaller without much degrading of the photo.
You can not make a small photo larger without degrading the photo.

While turning some of my shots into a DVD slideshow with software that permitted zoom and pan (the Ken Burns effect). I found that an 8 megapixel photo let me zoom further into the photo without loosing quality. This adds movement to the slide show.
As Martha Stewart would say....."That's a good thing".

With higher quality televisions, and DVD players coming along, this will be even more important.
Shoot big and best quality.

.................

But........

If you are taking photos that will ONLY be used for email or posting things on eBay. I would set the camera for 640 x 480, or 800 x 600.

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need more card capacity. Then, I'll drop it down to jpeg to fit more images in the remaining space.