You've already got good answers to the benefits of 16 bit vs 8 bit. But the question is not should you use 16 bit, but when should you use it?
First, when shooting RAW, you are naturally using a 16 bit (well really 12 bit) information set to do all of your manipulations that are possible in the RAW converter. If using CS2, for example, this would give the ability to even fine tune the Curves for the photo. So by the time you open it in Photoshop there may be little to do, if anything, that will benefit from 16bit mode. Since 16bit mode is much slower in PS, then it pays to think about where you want to go with the photo at the point your are ready to save out of RAW. Usually the only major thing I'll do is to do the sharpening of the image since I do multipass and selective sharpening. On many images 16bit won't make any difference for what I do, so I come in as 8 bit. I find that the majority of the images end up being edited in 8 bit and a few in 16bit. It seems to be a good workflow. But, to each his own!
Cheers,
rfs
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