I got the Canon Powershot S2 IS and I love it. Its MSRP is just under $500 and you should be able to find it cheaper. That model has since been replaced by the S3 IS, but they look to be almost identical.
I got the Nikkon Coolpix L5. So far so good. We looked at the power shot, but it was a bit more thatn we wanted to pay once you added mem stick, tax, etc. Also, it was a bit bigger and had more stuff than the wife wanted to deal with.