Hi everyone,
I made this tutorial on how to create a square groove in a rounded cylindrical surface and maintain quads. I used Maya 2008 but this should apply to XSI, Max, etc. Hopefully this is helpful to someone.

http://apinetgraphics.com/hard-surface-tutorial-1/

Thank you very much for the awesome tutorial!
Very helpful.

Thanks you don't have to always use split polys on the corners of the triangles to merge verts do you? i only had to add 2 before merging to get those tris into quads.

thanx mate, well done, btw, any one know the correct topology to insert an square inside a sphere??

If we're talking highpoly you should do it on a very highly tesselated sphere. The higher the tesselation, the less shading distortion.