Digital cameras are starting to sort themselves into three major categories. There are the cheap point-and-shoots, anywhere from $50 to $200. They don't take bad pictures, by any means--I'm partial to Kodak in that range--but they're best set to "auto" and left alone. Those might be replaced by smartphone cameras relatively soon: the Apple iPhone 4, Motorola Droid X, and Samsung Galaxy S are all highly capable cameraphones.
There's the high-end DSLRs, the giant and expensive cameras that are largely a battlefield for Canon and Nikon. These have interchangeable lenses, tons of features, and range from "prosumer" to full-on professional equipment. They also range anywhere from $700 to $5,000 in price, and attachments like lenses often add hundreds of dollars.
The third category is the most exciting to the largest number of people: the high-end point-and-shoots. These are cameras both for people who know what they're doing (and want something portable) and for people who want to take bad-ass pictures and maybe learn a little about photography along the way. They're not necessarily harder to use than cheapie point-and-shoots, but they're much more capable.
The gold standard for this category is the Canon S90. It's one of the first cameras to say "screw the megapixel race," and with good reason: it's a largely irrelevant spec, and more megapixels absolutely does not equal higher quality photos. Despite being a tiny whisp of a camera, the S90 takes unbelievable photos, especially in low-light, notoriously tough for cheaper cameras.
The new Panasonic Lumix LX5 is in this third category as well, and might usurp the title of most drool-worthy high-end point-and-shoot from the S90. Panasonic is well-known in photog circles as a damn fine camera-maker who sells great cameras for less money than Canon or Nikon due to a lack of name recognition in the category.
Like the S90, the Lumix LX5 eschews megapixel count, packing only a 10MP sensor. But it also has an F2.0, 24mm Leica lens and a 3.8x optical zoom. It'll take 720p video, and has an improved screen on the back so you get more accurate color reproduction in sunlight--a really valuable inclusion. It improves over its predecessor, the widely-loved LX3, with better image stabilization and face recognition, as well as a redesigned jog wheel for easier control.
The Lumix LX5, if it keeps or improves the series's vaunted image quality, could be the point-and-shoot to end all point-and-shoots.
It'll be available for $499.99 when it's released in late August. The price is a little bit steep, especially as the S90 is now only $299, but it looks very impressive. If you really want a stunning yet pocketable camera, give it a look.