I use gunpowder. I use psionics, too.
My campaign setting isn't your average fantasy world. I'm quite tired of dealing with the same old Tolkien-esque crap... my parents put a world like that together, and I decided that it was too cliche.
I use gunpowder, because my world has an unusual power structure: rather than your typical arcane/divine/psionics system, I have a magic/psionics/technology structure. Divine magic isn't really magic, either, IMC.
I still use some Tolkien elements, such as elves, dwarves, and all that... but they're not used in the traditional sense. I also use orcs, goblins, and kobolds as normal PC races, IMC.
I use gunpowder, but it's not broken or too overpowering. Fighters and those who are knowledgeable in technology (read: only technological classes) can use them, and fighters require feats for it. Add to that that TR (Technology Resistance) also works against firearms, and that all spellcasting classes and psionic classes have TR 5 + caster/manifester levels, and firearms become a less than optimal choice, in some situations.
Gunpowder is good.