Can't help with choice of camera - my recommendation would be a used Canon G10 which would be in your budget, but might be hard to find and is quite large. But on carrying your DSLR safely I put the camera assembled with a relatively normal-sized lens (and in my case a battery grip which I always leave on) into a "Built" closed-cell foam computer zip-up bag, and drop the whole into an anonymous lightweight backpack. The camera is well protected and the bag doesn't shout "expensive camera - please mug me". Any extra lenses I carry in their protective cases and drop them into the bottom of the backpack. I have a selection of these computer bags, and I find I can fit a 5D or 7D with grip and with a 100-400 lens into a computer bag designed for a 17" laptop. These bags are quite stiff and don't fit the camera at all well, which means there's a lot of bag at the bottom of the camera giving it extra protection in the event of the bag being dropped. They're also almost waterproof in the event of your being caught out in the rain. I would guess that a Rebel with (say) the kit lens would fit into a "Built" bag designed for a 15" laptop, and still zip up. Maybe even one smaller, but I'd err on the large side.
Canon 5D & 7D (both gripped), 24-105L, 100-400L, EF-S 15-85, 50 f1.8, Tamron 28-75, Sigma 12-24, G10, A1+10 FD lenses, tripods, lights etc
Last edited by peterbj7; Jun 29, 2011 at 1:59 AM.