Is it true that we should avoid making text in Ps cause the letters appear pixelated?

It depends on the output, pdf or eps (with Vector Data) can hold vector elements and type.

But for large amounts of copy I would recommend using a page layout application like Indesign.

No one here has mentioned the more advanced kinds of font smoothing avaialble to web browsers when rendering text on screen.  Jim has not said what his goals for use of his text are.

Photoshop does do font smoothing - antialiasing - of several types and strengths, but it CANNOT do font smoothing that takes into account monitor characteristics - there's no way it can known what monitor the text you're rendering is going to be displayed upon.  ClearType font smoothing in Windows, for example as rendered in Internet Explorer, uses color to help achieve sharp text that's rendered at the sub-pixel level.

So don't avoid using Photoshop to make text, especially for fancy fonts or drawn text that isn't going to be available to web browsers as a simple font, but if you're making a decision whether to render text that IS available as a web font to the browser, opt for having the browser render it instead of sending it as (part of) an image.  It will likely look better, be more scalable, and this will also result in a smaller amount of data sent to the user, meaning the site will display more quickly.

-Noel

If you happen to have a Lynda.com account, then Nigel French's 'Photoshop for Designers - Type Essentials' is a worthwhile browse through.  In fact my absolute favourite Lynda.com title. 

Incidentally, Nigel French heavily frowns upon the use of Faux type effects, and insists that a properly designed font be used.