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I own 2 digital cameras - one is a 3.2 mpx point-n-shoot, the other is a 6.1 mpx DSLR.
The Point and Shoot is the 3.2 megapixel Olympus Stylus D (D for digital). I bought this camera shortly after its release, after being happy with the Stylus 35mm. I don't want to say I was disappointed, but I wasn't overly thrilled with my purchase. Olympus uses XD memory cards. I don't know if they've improved, but they were very slow to record the images, so most were blurry. You pretty much had to shoot on a tripod or in extremely well-lit areas (outdoor shots are good) and make sure you don't move.
The DSLR is a Canon Digital Rebel XT. It was Canon's first DSLR under $1000. I love this camera. I carted it around Rome and Italy last spring, and it wasn't cumbersome, even with the lens on it all day. The shots are great as well. Indoor, most of my shots were flashless, so there's some blur on some shots.
In your price range, you can get a really good point and shoot. In that same price range, you won't get a new DSLR. You don't really want to use digital zoom (it causes major pixelation, even at native size).
If you're considering point and shoot, I'd go with the new Sony - I'm not sure of the model, but it incorporates the Anti-shake technology that made Konica-Minolta cameras as great as they are. KM is out of the photography business, and their merge with Sony has given Sony the digital technology that KM reserched and developed.
If you're looking at strictly SLR, I'd suggest the Canon Digital Rebel XT (the 8mpx one). It's nearly twice the price of what you're looking at, though. The Nikon D80 is comparable in price, and pics are just as good (in some circumstances, better - worse in others).
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