For those of you using Photoshop, click here for the link to download and install the nVidia Normal Map filter.
Once installed, you should be able to run the filter in Photoshop as needed. Here are the basic settings that I use to get started with normal map settings. Feel free to adjust them as needed.
You can also download the xNormal filter here - http://www.xnormal.net/Downloads.aspx
Once you are inside of Photoshop, you will find the xNormal filter under Filter > xNormal > Height2Normals. Here are some of my basic settings for "average" hand painted normal map stuff. When playing with the amounts in xNormal, don't forget to keep clicking the "Update" button to see a preview of your changes.