I'd go the DSLR route simply because you can upgrade it with other, better lenses if you find photography is something you want to explore further. The Canon 1000D fits your budget. I started with the 350D, but I've subsequently upgraded twice - it can be a very slippery, expensive slope.

Another alternative might be to look at the more recent four-thirds cameras. They've been developed specifically for the digital market, so they're more compact than traditional DSLRs, but they have the interchangable lenses.

One final thing: if you decide on getting a DSLR, once you've got your camera, never shoot on auto. Learn about aperture priority, shutter priority and ISO, and a whole world of possibilities will open up. Leave it on auto, and you may as well stick with a point-and-click compact.

Have been very happy with it (but I am a novice in the SLR stakes). Is a little smaller than its competitors which I liked. Came with normal and zoom lens. Worth a look at its replacement (E420 I think). But there are some proper photographer types around here who may offer more experienced advice.

The G series is an excellent line of compact rangefinders. Lenses are superb, they are smallish, highly versatile, well made and, in my opinion, very good-looking in a slightly retro way. In other words, they don't resemble mobile phones / powder compacts / Star Wars props. Reviews are consistently good and they seem popular with pros. I have a G7, but the G10 is within your budget. The new G11 has had rave reviews but is around £450.

For me SLRs are too big, too ugly, too samey and too noisy. After switching to rangefinders a long time ago, I've never been tempted to go back. And I take more photos!

Compact size, most of the functions you could ever realistically want that a DSLR might give you, excellent lens, usable zoom, delivers great results with everything set to 'Auto', and well within budget. It's my third compact digital camera, and the best by far. No contest.

take pictures. I love my Panasonic FX500 compact because I can carry it with me most of the time and it takes great pictures for it's size and cost. If you have dslr it's more of thing to carry around it's saying "I'm going out to take pictures" rather than "I'm going out and oh and I'll just take picture of that". Also I like taking street photography (for want of better word) so it's less obtusive to use a compact that bigger bulkier dslr. Basically whatever camera you get it should be one you are going to use the world is full of expensive tech nestling amongst the silica gel sachets in the box it came in.
One useful source of info is the amazon review section especially when it comes to flagging up persistent problems with particular models, when I was looking I was thinking of getting a Ricoh but the number of build quality comments on amazon put me off.
Oh and I got a gorillapod to use with fx500 and it's really useful.

has given the right answer... The Canon G10 can probably be had for your budget and combines near SLR versatility with compact portability. The image quality is better than an EOS1000D SLR in my experience, and the G series are the compact of choice for every pro photographer I work with. We have published images shot with them, the quality is that good.

http://www.amazon.co.uk/Canon-PowerShot-14-7MP-Digital-Camera/dp/B001FWY...

Alternatively the Panasonic Lumix LX3 falls into your budget

http://www.amazon.co.uk/Panasonic-DMCLX3-Digital-Camera-Optical/dp/B001D...

Panasonic cameras are, to all extents and purposes, rebadged Leicas. They are utterly superb and boast the best optics of any range of compacts.

(Amazon links provided for reference)

I would go with a DSLR as it gives much more flexibility in terms of future proofing. Simply put you can stick with the same body and just add lenses as you need / desire. I've had a Nikon D80 for a few years now and whilst there have been many newer models, there is nothing in the "wow, must have" realms that makes me want to change - it covers all the basic needs.

The other advice I would give is stick with the camera manufacturers - i.e. your Canon, Nikon, Olympus etc. At the end of the day its the lenses that make the difference not the electronics. I find the choice of Nikon vs Canon to be purely personal preference - i.e. how it "feels" to use. I've always liked and used Nikon's but my wife has always used Canon's....

One other option would be the Olympus E-P1, which is one of these four-thirds cameras. It gives the size advantages of the compact, but some of the flexibility of an SLR. A friend has one and loves it and generally reviews seem to be positive. They have just announced a E-P2 but its not out until early next year (and looks generally similar anyway).

It's a 'budget' level properly good DSLR. I bought mine 2 years ago for £350 brand new (well £400 but Canon did a £50 cashback deal) and I use it relentlessly.

It's a great machine. Overall functionality is almost exactly the same as on the mega-expensive Canon's at over a grand. The standard lens (18-55mm) is a bit bland but if it's your first DSLR its plenty good enough.

I think now the 400D has been replaced by the 1000D at the same sort of price, ie under £400.

You can find swathes of the new 1000D's in shops everywhere. 400D's are a good 2nd hand investment - I mean they're only a year or so old.

The GLW bought one of these about three years ago when it was about £700. It’s now down to about £450 and you might be able to get a second hand one in your price range. She thinks it’s “brilliant”.
But there’s a proper review here . . .

http://www.trustedreviews.com/digital-cameras/review/2007/02/13/Canon-EO...

I bought mine from Amazon, about 18 months ago and paid £250 for it. They've now whacked it back up to £455, but it's still a brilliant camera.

As for reviews and advice....

This guy's site is a mine of information and tips (As far as compacts are concerned, he reckons the Canons are the best you can get)

http://www.kenrockwell.com/tech/recommended-cameras.htm

And this site is as in-depth as you could wish for...

http://www.dpreview.com/

I'm really happy with my Sony. I contemplated a DSLR but ultimately it came down to what I wanted to use it for. I like taking pictures and I wanted to take reasonable ones but I couldn't be faffed with the weight of a DSLR and its accessories, never mind stopping all the time to change lenses.
I spend a lot of time climbing, mountain biking and other outdoor stuff; weight and bulk are a key issue here. For me, the Sony takes great pictures, has a 20x zoom and I can just about get away with stuffing it into a rucksack or pocket.
It also has a host of useful features such as a panorama mode (which is great in the hills) and in low light conditions it can fire off 6 rapid shots and combine them to give a good picture without flash. It also has a large fold out viewing screen and a decent macro facility. All in all, it takes excellent pictures - unless you really are a serious and creative photographer - what else do you want?

A Canon 1000D is a good place to start and may be all you need. If you get bitten by the photography bug, you can upgrade when you are ready. Cameras are being improved and upgraded constantly so once new innovations become the norm, prices come down.
I have a couple of Canon 400D bodies. I can't afford to upgrade, but I don't mind as I see it as a waiting game - the longer I wait, the better the camera I get for my hard earned dosh.

I knew you wouldn't let me down.
I'll have to explore the links that have been posted.
I used a Pentax ME Super in the old days. I even used to process some of my own B&W film. However when I decided to switch to digital I was seduced by the idea of portability and lightness. But in practice I became a bit frustrated with the lack of adaptability which is why I'm thinking of DSLR. These four-thirds machines need to be looked at.
Further contributions always welcome, especially if you have yet to add your ha'poth.
I'll let you know what I buy, which should be in the two or three weeks.

A Canon 350D - which is the earlier incarnation of the 400D / 450D / 1000D mentioned above.

If I can't be arsed lunking a DSLR about then I've got a Nikon P6000 which is a bridge between the DLR's and a simple point & shoot and is a great little camera

SLRs are very bulky and I personally prefer a rangefinder type camera. Don't get seduced by the mega pixel size and just ensure it has a great lens. The cannon g range is excellent and is probably a good place to start.

I had in mind getting a new camera for Mrs.T for Chrimble and now I have all the info I need. Good work! One point - of the recommended, how are they weight wise?

If you want to take pictures of static subjects then you can get away with a compact. If you want to take pictures of anything moving, kids for instance, you need an SLR. All compacts (and that is ALL) suffer from shutter lag, and are no good at all for anything moving.

The other problem with compacts, even those such as Canon's expensive G-series, is that they all have a tiny sensor. This means that they are more or less useless, due to noise, above 400 ASA.

The new Olympus and Panasonic 4/3 interchangeable lens compacts look interesting, but they don't have an optical viewfinder, which is a deal-breaker for me.

As for the 50mm Canon lens mentioned above, when I shot film I frequently went out with just a 50mm standard lens. But on my Canon 1000D that becomes an 80mm lens. Now I may want that in my bag for portraits, but it's too long to use as a walk-around lens.

...what they said above, but what do you want to do is important. I love Canon gear and have a 350D, I've been less happy with Fujifilm, although I've had a couple.

If you can work within the limitations of a single body machine like the G11, it's probably a better compromise. I'd be looking for >10 mega-pixels and >10* zoom. Most decent compacts will give you aperture and shutter priority setting, black and white and so on.

However, I particularly wanted manual focusing because I regularly go to motor racing events, so it's important I can over-ride the auto focus for moving targets, which is frequently hard/difficult/impossible on many compacts.

I also frequently use very high ISOs for low light situations, like school concerts, so ISOs north of 1600 and full manual aperture/shutter are important to me then too. At 1600 my Canon is ok, my Fuji is horrible. It's worth trying them out in your normal scenarios if you can.

Lenses are a big investment, and the standard Canon ones on the 350D were pretty cheap and nasty. Nikon's were much more solid feeling. I got a Sigma super zoom 18-200, which behaves like about 35-300 because of the small camera sensor (about 2/3rds of a 35mm frame) you get in most non-pro bodies, and I pretty much never take that lens off. It's a good enough compromise with just a little distortion at the extremes, but a pair of lenses doing 20-150/150-300 would be a pain for me. That 2/3rds multiplier also means than if you want a fish eye/wide angle, you'll be spending a fortune on one and lose some of it's capability.

A DSLR and lenses is also a hell of a lot bigger than a compact and a pain to lug round.

Slightly more long range question - the D lenses from most of the manufacturers (Sigma and Canon spring to mind) are built for these smaller sensors and are therefore cheaper, but they won't work properly or at all if you try to put them on a 35mm film/full size digital sensor body, so if you spend a lot on D lenses and want to upgrade to a pro body with a 35mm sensor, you'll be buying new lenses. That may never be any issue for you. It might become one for me in a year or so.

Do you want high speed multi-shot, like more than 3/sec and more than 10 at a time - that usually requires a higher end/high price body. And compact start-up time was a huge issue for me on my early compacts - drove me up a tree. Definitely try them out. My 350D is ready to shoot about as fast as I can go from the power button to the shooting button, but anything that unfurls a lens from the body is probably going to be slower. Electrically operated zooms can be annoyingly slow too, and chew the battery.

You may have to make compromises between the number of pixels and the quality of the low-light performance on a compact camera.

As manufacturers pack more and more pixels onto smaller and smaller sensors, there comes a point when each pixel is just too small to do the job.

Canon have reduced the number of pixels on the G11 to 10 megapixels from the 14.7 of the G10 in order to improve the picture quality in low light.

I was thinking of going with Fraser's recommendation of the Canon EOS 1000 when suddenly about £80 is added to the price.
I'll wait till after Xmas.

usually have special offers around bank holidays so may have some in the next few weeks.