Digital cameras: Help selecting a camera

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I have the Sony HDR-HC3 camcorder. It has superb high definition video, as good as it gets at the consumer level. It also takes 5 MP still pics with decent quality. The image quality is comparable to the PS cameras, but there is practically no meaningful control setting adjustment.
Sony's DSC M2 also takes decent video and 5 MP stills, but has some basic control over camera settings. I only played with one in the store before, and the video does look better than average.

I would say that the video quality of most digital cameras are mediocre at best. I had a Canon SD 500 some years ago when it first came out, the video is only fit for desperate use, when you forgot your camcorder at home. Comparatively, the photo image quality of the Sony HDR-HC3 is decent and acceptable, not far from an average PS camera. So I think the camcorders are doing a slightly better job than the cameras. But of course, the camcorder is more bulky and you cannot put it in your pocket.

Sanyo VPC-HD2 HD CAMCORDER is compact and from what I read in review, it takes sharp photos and can record "HD" video. I don't own one but you can check it out.

But personally, I actually carry both my D-SLR and the Sony camcorder, because I want to get the best photos and videos possible. And there is no gadget out there that can do both superbly.