Logos in Photoshop or Illustrator?

A client wants me to create a logo for them using an image inside chunky text. They want an outline around the text. The first thing is that I'm having a hard time doing this in Photoshop (the outline part, that is). The second thing is that I'm wondering if logos shouldn't be designed in Illustrator since its vector-based, making re-sizing easy. I'd love some advice. Thanks.

Hi Elton,
This problem is actually quite typical. The client thinks they've asked you for a Logo Design, but what they've really aske for is "Branding Artwork".
If you were to use this "Artwork" as a logo is intended to be used, when it is printed on a small space like a business card, or dispalyed on screen in the header of a website, the image inside the logo won't be clearly visibile at all and will be distracting and incoherent.
You can still do what the client is requesting but explain this to them and present them with a solid colored flat version of the logo, and a solid outline version of the logo and demonstrate how they are supposed to be used. This is part of creating Brand Style Guides.
The initial Wordmark Logos should be Designed in Adobe Illustrator. Illustrator will create clean sharp vectors and make it scalable at any size.
To accomplish what you are trying to do with the image inside chucky text do the following.
Create your text and then create a duplicate layer of it in Photoshop. Link these two layers.
Next, insert your artwork in between these two layers. Apply a clipping mask to Artwork layer, clipping it to the bottom text layer.
On the top most layer apply a stroke to your text, then in the layer style reduce the Fill to 0%.
You can do something very similar to this in Adobe Illustrator as well and produce the same result. Alternatively you could bring over vector art from Adobe Illustrator as Smart Objects and follow more or less the same process.
I talke a bit more about Why Adobe Illustrator is preferable for Logo Designers in this video:
http://youtu.be/LI4c5MAP_V4
I hope this helps you out. Let me know if you have questions. I'll eventually do a tutorial video on this since I'm sure a few people are wondering how to do it.

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