Les, if image IQ is your first priority, you can either simply buy a 40/2.8 lens if you can live with this FL as your walk around, going the Oly E-PL1/Pana GF1 with a 20mm, f/1.7 pancake lens, or picking up a camera with smaller sensor, like G11, Samsung EX-1 or Panasonic LX3 or upcoming LX5. Everything is a compromise, as you know. The question is what compromise YOU are willing to make.
I was in a similar situation 3 months ago and G11 won for me. I wanted a relatively compact all-in-one package (have largish hands
), so the S90 was too small for me.
E-PL1 and GF1 were above my budget and I knew that I wouldn't end up with only a prime lens and would add more lenses down the road, Oly E420/450 with a 25mm/2.8 was not small enough (+ more lenses potentially).
DOF control is tough enough even with a APS-C sensor, so I discounted that as well and got G11, which fits me nicely and in good light, IQ is great and at higher ISO is acceptable. this is G11 at ISO1600:
PS. sorry for stealing the thread