It's not photoshopped, The method I use for these pieces starts off with loading the original picture into GIMP, I then make a transparent layer and use a single pixel pencil tool to trace over the original and make a black and white (transparent) version, just as you would had you traced a hand drawn picture.
That version is then pasted into MS paint, where I create my pallete (usually about 5 colours per transition) and start smoothing down the lines. All pixels are hand placed. All colours are chosen by myself. I've referenced the original art.
SLICK... your AA skils are awesome, I hope to be 10% as good as you some day.