More padding helps, should be at least 4 pixels for 1024x. Also helps to fill the empty in-between areas with 128,128,255 instead of black, so there's never a bleed problem. Don't use JPG because it's lossy, use TGA instead. You've got the right shader on the end of your image there. Ambient Texture slot is for the…
Yeah I've tried swizzling the Y channel with xNormal and doing the same in max and all possible combinations. It doesn't seem to really help much with the seam. But just baking the normal map in xNormal alone I can tell is much better than 3ds max baking. At any rate, thanks guys, I think I've got mostly everything figured…