old news
we're all pretty much knowing of that, there are numerous threads with such discussions
you don't just have to merge visible, depending on ps version it can be easier to have explicit layers selected/merged
that will be pretty much the same for most skinning engines, any effects will be needed on a flattened layer, Xion does have the advantage that you don't need to split/spit out the layers to pick them up in an external xml file and it also helps to structure your psd, to go one step further with the psd would be to label every layer properly then the skin could be easily ported to other media players
if you have an editing tool that can group layers then this is also a good way to hide/group layers to reduce the initial look of the psd but bear in mind that if u just hide the group it wont hide any of the layers, those layers will still show unless utilising keywords/loops etc..