There is no need to save as a TIFF - just import the Photoshop .psd file directly into Indesign.
There definitely is an advantage to TIFF with either ZIP or LZW compression, transparency maintained, and maintain layers over PSD in this case. The file will be much smaller in most cases than the corresponding PSD file.
If you truly have a transparent background, that transparency will be maintained from TIFF assuming in fact you did save with maintain transparency option. (I do this all the time quite successfully!)
Bill and Dov, thank you for your replies. I haven't tried using the PSD file, mainly for size reasons as Dov mentioned. And I have been making sure they are saving with the transparency options checked. I'm just not sure why this is happening the way it is. I even went the "destructive" route and used the mask to "erase" section of the reflection that I wanted to "fade away" (rather than using a mask to "hide" it) and still got the same flattened results. I'm off to work again, I'll try experimenting some more. Somewhere I've gotten a layer order or masking option off I would guess.
A screen shot would help. Also, where are you viewing this? In ID? If so, make sure high quality preview is on and that your link is up to date. If you're seeing it in a PDF, make sure you're viewing in Acrobat or Reader and not Mac Preview.