[I originally posted this to vox.com on 4 Feb 2008.]
Photo.net surveys the image file format landscape here.
The inescapable fact is that you can't ever display an image that contains all the information that Nikon's FX sensor gathers.
Sure, you can store the raw sensor data -- all four channels of it -- at either 12 or 14 bits per channel by setting the Image Quality to NEF, but every device capable of rendering your image can only render three of those channels -- the Red, Green, and Blue channels (thus RGB) -- at 8 bits per channel. This is true of the D3's built-in rear LCD, it's true of all computer monitors, it's true of any color TV, and it's true of any color printer. So by the time you see your image, you're going to lose 4 or 6 bits of information on the RGB channels, and you're going to lose the fourth channel altogether.
So why in the world did Nikon spend so many years developing a sensor that collects more information than any image rendering device viewer can ever display? Because you can and usually do make use of that extra information during your "workflow" -- that is, when you adjust stuff like white balance, contrast, saturation, resizing, sharpening, etc. They are all lossy transformations.
Go ahead and take a moment now to embrace that horror.
The real issue is, are you going to perform those lossy transformations "in camera", using Nikon's firmware algorithms, or are you going to perform them after you get the information off the camera (ie, in Picture Window Pro, etc)?
If you favor -- and want to archive -- the D3's built-in transformations, and the control that the D3 gives you over them (collectively called Picture Controls by Nikon), then you must either base your workflow on Nikon-proprietary off-camera software such as ViewNX, CaptureNX, and their descendants; or allow the D3 to store the results of those transformations in either TIFF or JPEG format. TIFF storage does not introduce any *additional* loss. JPEG does.
If ending up -- permanently -- with just one size image, and more specifically one of the three sizes offered on the D3 (L, M, or S) is ok with you, just save in JPEG format. You can fit more pictures on your memory card that way.
But if, like me, you want the ability to generate JPEGs of arbitrary size (I publish my images in three standard sizes) using only standards-based software, then save in TIFF format.