Here's the Captain from the Sky Pirates game I worked on for Cadillac Jack Games last year. The gear and some of the frame elements were created in Adobe Illustrator before putting them in Photoshop for final paint and FX. She was painted entirely in Photoshop. Although I usually prefer to paint everything without using a lot of Photoshop FX, I chose to use Bevels and Gradient Overlays for the gear elements so that they would remain flexible for the animation process.
All of my files for CJ games have to be layered and prepped for animation. Here is a quick animation I did in Photoshop that shows some of the elements that are able to move. Notice when the gear spins that the reflections remain horizontal. That's the Photoshop FX I mentioned above doing their work.