Forget about monster megapixels. 7MP or less, down to 5MP will likely give you better quality images, than a larger camera. There isn’t much difference in the physical size of the sensors on consumer and prosumer cameras, and most of the high MP rigs suffer from a “noise” problem, which they then filter out with a built in program. The result is often pictures that look like melted wax. I reckon to get flamed on this, LOL, but I still take a lot of good shots with an 8 year old, 2MP camera. I’ve won competitions with it, against the big dogs.Funny that you mention that... Somewhere in the basement is my ancient Sony Mavica (I can't remember the model, it's the one that writes directly to mini-CD) and at one time it was their top of the line, and sold for over $1000. I bought it used at a computer store, after it had been marked down, sold, returned, and marked down again. While I spent a lot of money on it (about $350, I think), it was a real bargain at the time. It is a 2MP camera, with a really LONG zoom lens, and image stabilization which allows you to use every bit of the zoom. And the 2MP images are WONDERFUL! I'm able to blow them up to 5x7 with practically no noise or artifacts, and 8x10 photos still look remarkably good, probably for the same reasons you mention.
The biggest problem with it is the shutter lag... When you press the shutter, the viewfinder would go black which indicates you can go get a cup of coffee, and once you're finished drinking it, the photo is taken. I have the most amazing photo collection of animal butts ever! That's because it takes so long from the time you press the shutter until the photo is taken, the animal has time to wander half way across the frame!
On the other hand, I love my Nikon D70s, which seems to have as fast a firing shutter as my old film Olympus OM2 and Nikon FM2.
Mark
Olympus C2100UZ 2MP
Olympus C720UZ 3MP
Either of these images will print nicely at 8X10. The foremost advantage, for most people, of high megapixel numbers, is the ability to zoom in and crop after the shot. This is the same effect as digital zoom, and the image quality degrades with each step. I recently reached the peak, for me, of 8MP, but usually have the camera set for 5MP. I've got 300 GB of discs on this computer, I keep them full of images and a mega camera would only fill things up faster. If they aren't going to print circus posters most folks would be very happy with 5 or 6 MP. I still use the 8 year old, 2MP C2100UZ on a regular basis. Much of the MP thing is an insecurity thing, "mine is bigger than yours"! I'm not talking about the professional photographers here, just the average users. I've seen a lot of low quality pictures from $3000.00 cameras, the issue hangs heavy on the machine operator.
Olympus C720UZ 3MP 
Either of these images will print nicely at 8X10. The foremost advantage, for most people, of high megapixel numbers, is the ability to zoom in and crop after the shot. This is the same effect as digital zoom, and the image quality degrades with each step. I recently reached the peak, for me, of 8MP, but usually have the camera set for 5MP. I've got 300 GB of discs on this computer, I keep them full of images and a mega camera would only fill things up faster. If they aren't going to print circus posters most folks would be very happy with 5 or 6 MP. I still use the 8 year old, 2MP C2100UZ on a regular basis. Much of the MP thing is an insecurity thing, "mine is bigger than yours"! I'm not talking about the professional photographers here, just the average users. I've seen a lot of low quality pictures from $3000.00 cameras, the issue hangs heavy on the machine operator.