because i wanna make a picture on photoshop what size do i make it?

If you want to set a picture as a background, then set 176x133, your picture won´t become deformed. I have that resolution for my background and it´s ok.
It´s only my opinion. ;)

I've read it should be 174 x 132 and I've always used this size...

To have full screen background on 7650, you should use 174 x 132 or 348 x 264 or 696 x 528 pixel. Normally, I use 348 x 264 because it give better quality than 174 x 132 and take up less memorythan 696 x 528

In all fairness a 174x132 image wil be exactly the same quality as the 348x264 image displayed at 174x132. In fact you will probably get better quality from a 174x132 resized to that in Photoshop, than making the phone resize a 348x264 image.