In researching non-SLR digital cameras, I see that most will save files in jpeg only. All Canon & Nikon non-SLRs released in 2006 will save files in jpeg only.

That means that there are a lot of jpeg files being saved, which are not suitable for retouching. How do people retouch them in Photoshop? Do they save them as tiff files & then retouch the tiff files? That seems like a clumsy way to do it. Is there a better way?

Just because they are JPGs it doesn't mean they can't be retouched.
This is specially true if the images were stored with minimum compression.
Sure, if they were created as TIFFs or better yet in RAW format, it would be ideal since there would be no loss of quality. But high quality JPGs can be retouched with a certain degree of success.

In researching non-SLR digital cameras, I see that most will save files in jpeg only. All Canon & Nikon non-SLRs released in 2006 will save files in jpeg only.

That means that there are a lot of jpeg files being saved, which are not suitable for retouching. How do people retouch them in Photoshop? Do they save them as tiff files & then retouch the tiff files? That seems like a clumsy way to do it. Is there a better way?

But yes, save them as TIF or PSD after retouching (never re-save JPG files).