Also anyone know the merits of .rgb over .png or .jpg, or even .tga (which seems common for games)? It seems to be an uncommon graphics format.
For the purposes of modeling for FG, .rgb .png and .tga can probably be considered interchangable as they all support color depths suitable for FG and support no compression and lossless compression. JPG is the only one out of the bunch that supports lossy compression and, IMO, should be used carefully when saving to avoid gaining compression artifacts.
If my understanding is correct, FG uses only .rgb files for textures so you'll need to end up in that format. Despite what I've read at the FG wiki, the rgb/sgi format is not supported by a lot of common commercial "paint" programs (such as Adobe Photoshop), but the GPL'd GIMP/GIMPshop does.
In summary, I don't see any real value in working with JPG images but the other formats mentioned are fine. In fact, if you start from a JPG on an image with relatively few colors (no shading, using a few discrete colors as on a panel gauge or similar), lossy compression artifacts may cause the image file to be unnecessarily large when converted to .rgb with RLE compression. Run Length Encoding compression is ideal for images with just a few, discrete colors and the speckles that can result from lossy compression can trip up the RLE algorithms when converting between formats.
Imagemagick is/has a great image file format conversion utility which does a really nice job moving between these formats.