There are far more flavors of digital cameras than there are film cameras nowadays. Many of the electronics giants such as Sony and Panasonic have also entered the game and using their reputation with TVs and telephones to sell you cameras.
My first humble advice is - buy a camera from a camera company. Ignore the Sonys and the Panasonics (Dont get me wrong - I love the other Panasonic products).
There is lot more to the camera than a CCD chip and megapixels - and those companies whose core competency is in cameras - make the best ones by far.
Now that you have narrowed the field slightly - here are a couple of pixels worth of advice on that nonsense called megapixel.
How large do you want to print your picture? If you want 11X14 inch prints - then a 3.2 MP camera will do fine. For an 8X10 inch print - a 2MP is fine. Dont believe me? Then download a picture from a camera review site and get it printed at your local store. For sizes that are 4X6 inch or so - a 1.3 MP is just fine. So, dont spend your hard earned money on chasing the MegaPixel circus. You should also aware of cameras that claim 6.3 megapixels (like some of the Fujis) but when you read the fine print - it turns out they are 3.2 MP effective. Its the effective MP rating of a camera that is important.
Also remember this - a 4MP camera has 100% more pixels than a 2 MP camera. However - the difference between a 4 and 5 MP camera is only 20%. Small enough that you may not notice the difference. Beware of the Mega Pixel game - I cant but emphasize this again and again. Buy something adequate - and you will be just fine. I feel that a 3.2 MP version fits the bill amply - for the present and near future.
In addition - if the greater MPixels are squeezed into the same CCD space, noise levels go up (each pixel is smaller, light hitting each pixel is less, signal amplification required is more, noise level is higher - got it?). One reason professional level cameras use fairly large CCD chips that also cost a lot more to make.
Now that we have the MegaPixel game out of the way - what else to look for. Heck - thats where the differences arise. Noise, Contrast, Dynamic Range, Exposure Accuracy, Color Fidelity, Purple Fringing, Light sensitivity, Sharpness and some more. If I were to describe all of them - I would be typing all night. So - I will cut that part out. But performance in these are the real keys to a good camera.
I have found three companies that consistently get these parameters right and make truly good products. These are - Canon, Olympus and Fuji. Of these - Canon and Olympus make nothing but cameras - and Fuji has made film and some great 35mm cameras in the past. They definitely seem to have mastered this technology.
In my household - I own a C-4000 from Olympus, brother owns an Olympus D560, Mom owns a D520, and Dad got himself a C-4000 after seeing my pictures. All are very happy with the images - sometimes unbelievable - they look so real.
My experience with Olympus started with a D-460 that I purchased at work when Digital Cameras were still a novelty. That camera had its flaws in the picture quality arena (35 mm was superior ) but after thousands of pictures combined with bad handling - its still going strong.
I then wanted to get a camera for myself - and on an impulse - I purchased a Konica 2 MP camera. The day I got it, I noticed how much more granier/fuzzier the pics were compared to the Olympus. Pics from the Olympus were far superior in terms of clarity and color fidelity - even though it had a lesser megapixel CCD. Needless to say - the Konica was promptly returned by me after taking a few dozen test shots. After that experience, I stuck with the D-460 for a while - biding my time for technology to catch up.
When I finally decided to go digital - the problem was which one to get? Sony was out of the question. Their image quality fared than the Konica I had purchased earlier. After much research and test shooting, I narrowed the field down to Canon, Olympus, and Fuji.
Canon digitals are great - but cost a whole lot more money. I wanted to be kind to my wallet. The Olympus offered equally good pictures for about 25% less money so got myself a C-4000 and have loved it since. Its a little cumbersome to use in the beginning - but its easy to get used to. If you have money to burn - then maybe Canon is what you want. However, the C-4000 is really for people who are a bit serious about photography - it has more features than an SLR.
When other members of the family also wanted their personal digital cameras - we too considered Canon again (the family logic being that we should not all own Olympuss) but the cheaper Canons fell out of favor because of the price factor and picture quality. Olympuss were cheaper and in some cases took better pictures. So we had to all settle for Olympuss yet again. I have now played around a lot with the D-560 and D520 models - compact and very handy. Fits in your shirt pocket and takes exceptional pictures. An additional advantage was that all these cameras use standard AA batteries (rechargeables are a must - regular batteries dont work in digital cameras) and I did not have to pay an arm and a leg for Canons proprietary batteries.
If I had to vote for my favorite budget level digital camera - it would be the Olympus D560 and its variants.
Some dude in Australia was quite impressed with his D-560 and posted pictures for others to judge - try this URL - and his pics are not even the full size versions.
https://members.ozemail.com.au/~bobpar/photos.htm
My own pictures with D-560 are no different to those of Bob from Down Under. The
C-4000 that I personally own takes better pictures when light is limited and offers more creative possibilities (including adding additional lenses and filters). But for regular picture taking - nothing beats the C-560 and their current variants.
Lastly - NO - I DONT work for Olympus at all. Its just that I like to call a spade a spade. A good product gets my Kudos and a Bad Bad product (Like my Nikon SLR), gets the boot.
Hope you find the information useful- and remember - pictures keep memories alive - memories keep your soul alive...