Online photo-editing applications keep getting better as the competition heats up between startups like Picnik and FotoFlexer. Today, a very large competitor, Adobe, is entering the market by releasing a Web-based version of Photoshop for editing pictures called Photoshop Express. It is in public beta and anyone can sign up.

Photoshop Express is by no means just Photoshop ported onto the web. It would even be a stretch to say it’s a stripped down version of the desktop software, since it’s intended for mainstream consumers, not professionals.

It has got plenty of filters intended for tuning and effects – you won’t find any tools for drawing lines, adding text, or creating shapes. What you can do is easily take out red eye, touch up undesirable areas, change saturation, pop color, and crop (among other things).

Photoshop Express also differs from its desktop cousin by serving as an online storage and photo sharing service. You can upload up to 2GB of photos to the web app (or pull them in directly from Facebook, Photobucket, or Picassa). They are arranged in a collection that can be made available to others or kept private. Embedding and slideshow functionality is also available.

For me, 2GB storage is the reason to try this service. I still like Flickr but its limited storage holds me back from using it. But i’m sure, someday Flickr would do away with the storage limits.

Since all computers come with basic software that rotates, resizes and crops photos, there needs to be a compelling reason to use an online service. Uploading a photo to such a service, editing it and then downloading it back to your hard drive too high of a cost. To compensate for this, most services allow you to transfer the edited photos directly to Flickr, Webshots or other online photo services, saving users the trouble of making round trips uploading and downloading.

Most of these online services also offer editing tools that go beyond simple rotation, resizing and cropping and start to creep into Photoshop territory. Here’s a few of the better ones:

Fauxto is a Flash-based Photoshop look-alike. It is the only layer-based online tool that I know of, and is by far the best of the bunch. But if all you are looking for is photo editing, and you aren’t familiar with Photoshop, Fauxto will frustrate you with its complexity. And if you are already familiar with Photoshop, chances are you have a copy already. Fauxto is lovely to look at and it is a really nice example of Flash in action, but I’m not sure who their target market is.

Picnik is the new kid on the block, and they’re the best so far. It is also Flash based, it is the fastest of the bunch and the user interface is the most intuitive. Once you are done editing, you can transfer your photos directly to Flickr. Picnik has replaced Ajax-based PXN8 as our favorite online photo editing tool.

Picture2life is an Ajax based photo editor. It’s focused on grabbing and editing images that are already online. The tool selection is average, and the user interface is poor. There are some bugs on the site. Photos can be transferred to Flickr, 23 and Imageshack after editing.

Preloadr is a Flickr-specific tool that uses the Flickr API, even for account sign-in. The service includes basic cropping, sharpening, color correction and other tools to enhance images. The fact that Preloadr is designed specifically to work with Flickr may not be an advantage – some of the other services are just as good or better and also offer Flickr integration.

PXN8 is the best of the Ajax based editors (and the best overall until Picnik launched) and has a great user interface with the main features highlighted on large icons. The basic “enhance” feature does a very good job of fixing the obvious problems with pictures. Edited photos can be transferred to Flickr or Webshots’ AllYouCanUpload service.

Snipshot, previously called Pixoh, is another very-good Ajax-based editing tool that stands out because of its above average design and the fact that they have an API into their service. I prefer the features and UI of PXN8, but just barely.