You’re both correct; bigger megapixels do lend themselves to cropping. Again, it all goes back to the specifics of how you want to use the photo.
Professional photographers should always have the option to crop, especially if they use high-end DSLR equipment that balances ISO and resolution due to using a larger sensor. My complaint isn’t about resolution per se, it’s a complaint about resolution vs. sensitivity. The average consumer believes that a 15 MP camera is automatically better than a 10 MP camera, even though the 10 MP camera may make consistently better quality images in most lighting situations. Not so much with DSLRs, that have larger sensors and can handle higher ISOs.
It makes it hard to find a decent all-around camera unless you want to carry around a clunky DSLR all the time.
And many people, especially those using point-and-shoot, they’re not as worried about composition...they just want a pouty picture of themselves to use as their Facebook signature.
Of course, I’m talking about point-and-shoot, consumer-grade cameras in general. There’s no real need for them to have 14+ megapixels when most people are simply viewing their pictures online or making 4x6 prints.
The camera business is starting to get really interesting. I used to have a cheap pocket point-and-shoot for when I didn’t want to lug the DSLR around; as of the iPhone 4, I don’t carry a cheap PAS any more.
The best cell phone camera isn’t yet on par with a $250 point-and-shoot, but they’ll give anything under $100 a run for its money. I’d be happier if they could shoehorn a bigger sensor and lens into the case, though.
I think the sub-$100 PAS cameras are becoming something for kids, like the 110 Instamatics of my youth or the unlamented disk camera. The high end of PAS is fighting it out with the low end of Micro Four-Thirds and other “mirrorless” systems, which are almost as pocketable and a lot more versatile. At the other end of the scale, the high-end mirrorless is a pretty attractive alternative to a lower-end DSLR. Meanwhile, Lytro (http://www.lytro.com/) isn’t quite ready for prime time, but the technology behind it is eventually going to shake things up.
I would love to be able to trumpet my old-school photography fred, but I am definitely a product of the digital era. I learn best by trial and error, and I would never be able to afford the film and processing for the number of shots I’ve run through since getting my Canon DSLR seven years ago. I think I could get solid shots with a 35mm now, but it’s taken a lot of free shooting and instant feedback to get me there.