I always love the Capa image of the dying Spanish Republican Soldier which he set up. I don't know if it counts as Photoshopping but it is setting up a photo, which is what the Soviets did at the Reichstag.
And Pallywood (and Hezbollywood to a lesser extent) has used the practice to great success in the Western press. Often with complete collaboration with them. It feeds racists with information that fits with their preconceived notions, so it goes on and on. It would be funny (like the Iraqi Minister of Information) if not for the very real consequences from it.
