Nikon makes some great digital cameras; the Coolpix 885 ($500) has a 3:1 zoom and 3.2-megapixel resolution. And Minolta will have available soon an amazing little camera called the Dimage X - about $400 street price, 3:1 zoom lens, the size of a deck of cards. A perfect digital camera for traveling, but not water-resistant. You might also look at a Sony camera called the DSC-P5 ($550 street price). It's a terrific little camera - 3.2-megapixel resolution, very compact, 2:1 zoom lens. Plus, Sony makes a watertight plastic case for it that makes the camera truly bombproof. OK, the case is another $200, but taken altogether it's a reasonable price for a high-end setup.
That said, I remain decidedly lukewarm on the subject of digital cameras and traveling. Unless you really, truly need and want to send pictures via e-mail while you're on the road, I think they're a little delicate, plus you'll need to edit out pictures on the fly to maintain enough storage capacity. And yes, you can do that. I've seen people with digital cameras take a picture, then stand around for five minutes peering at it on the screen to see if they want to keep it, or walk around and show their friends a picture of something standing right in front of them, which I think is incredibly stupid.
Personally, I will continue to match my standard-film Yashica T4 ($160) - which is water-resistant, compact, light, easy to use and has a terrific lens against any sub-$500 camera on the market, film or digital. Oh, wait - THAT'S the camera you ought to get...
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