Photoshop is what the vast majority of all web and app designers use at some point in their process.

Great design has almost nothing to do with the tools used.

Seems like an irrelevant point. 89a didn't say "UIs designed in Photoshop are awful", after all. But a tool can be bad for a job, even if it is technically possible to do good work with that tool.

That said, I think that Photoshop does have a few core features that designers really like for web design, and then a ton of features that get in the way for that particular use case. So basing a web design tool on those features of PS that are good for web design seems like a reasonable strategy.

But it's powerful and that is what matters.

What would you suggest as an alternative?

I'm all about Fireworks personally. Love it's ease of altering my work on the fly.