After a lot of research, we have narrowed down our options somewhat, still based on the $800 budget:
1. Get a D60 with the 35mm f1.8 and SB-400 flash
2. Get a D60 with a Tamron 17-50mm f2.8 or Tamron 28-70mm f2.8, SB-400 flash (may get over our budget, any thoughts on refurbished?)
3. Get a D80 with 18-55mm and SB-400 flash
Bottom line, we determined that an external flash was going to be a necessity in our 'next step' to get better pictures. We are wrestling with whether or not we could live with the D60 limitations (smaller size, lens restrictions, etc.). We also saw a deal on a reburbished 40d with the 28-135mm IS lens for $800 that we are finding hard to resist. That is a lot of camera for the money. I know this is the Nikon board, but any thoughts?