Ok lets begin.
I am using Adobe Photoshop CS3 Extended for this tutorial please note that the colors may vary on different system and versions of Photoshop.
Lets begin
Create a new document with the following settings.
Once the new document is open fill the background with Black color then take a new Layer (Shortcut CTRL+Shift+N) select the "Rectangle marque tool" and draw as shown below then go to "Edit>Fill" and select "50% Gray" from the use list and click OK. Please make sure that the default colors are set to Black & White as shown by a red square before proceeding further.
"Please see that you have done everything as mentioned above otherwise it will mess up the whole thing."
Now press "CTRL+D" on your keyboard then go to Filter>Render>Fibers
Click on OK button. You may also change the distribution of fibers if you want by clicking Randomize button then click OK. Now go to Filter>Blur>Motion Blur and enter the settings to Angle = 90 & Distance = 250. The object should now look like this
Now go the Filter>Liquify (Shortcut CTRL+Shift+X) and modify the Object using the 1st Tool from top and make it look similar to fire or as shown below, also make sure that the settings marked by a red square are the same when you modify the object. after finished modifying object in Liquify Click OK.
Now select "Smudge Brush" the toolbox and run around the border of the object to smoothen it.
Now Right click on Layer 1 and select Duplicate Layer from the menu now go to "Filter>Artistic>Plastic Wrap" and enter the settings as shown in the screenshot below
Now change the Layer mode to Screen as shown below
Now do as in the following screen and when you see a color dialog select a dark orange color and click OK.
Now you're almost done now select Layer 1 (not the duplicate) and go to blending options now select outer glow and adjust the size setting according to your will and click OK.
Now go to Image>Adjustments>Levels the adjust the points according to you and click OK.
You're almost done you have to place the skull in the fire. Get a good picture of a skull and do as follows:
Select the skull area using Quick Selection or Lasso Tool now copy the selected area (CTRL+C)
Now paste the skull on the fire and adjust it according to the size of your fire and you're done.
My created fireskull
Hope you liked my tutorial