Am pondering my camera setup at present. My ‘ancient’ Nikon DSLR (ca. 4 years old) is noticeably outclassed in the image quality department by a compact which was about 1/6th the price!
Current ‘serious’ compacts (such as Canon G10, Lumix LX-3) offer about twice the resolution of my DSLR for half the price it cost me back in 2005. The worry is that if megapixel counts keeps growing, I’ll be looking at updating again in another 3 years.
The rising tide of Moore’s Law makes me nostalgic for film. Not too much though, processing and scanning was such a faff!
things that might have been otherwise 
i started typing an essay in response, but then decided to cut it back to basically ‘never mind the quality, feel the width’ !
the compacts your looking at might offer more megapixels to the pound, but what about the optics ? moore’s law might apply to processing power & image sensor technology, but it doesn’t apply to the physics of light passing through a piece of glass – & the optics of the lens(es) you paid for for your d70 four years ago are still waaaaaay superior to the optics you’ll ever get on any compact camera, or even the optics you’ll get with the bundled lenses on such as the current d40 which is half the price of what you paid then – 10MP storage of a poo image through a poo lens is no match for 5MP storage of a quality image through a quality lens !
Ah, don’t get caught up in the megapixel myth. It’s all about sensor size, glass and the processing. I’m quite confident that your ‘ancient’ DSLR will still outstrip any cheap compact – even if it does make a fuss about having 12 megapixels!
@simon @Fran: I hear what you’re saying, and the site DPReview.com has a good way of expressing it in numbers- with camera reviews, they state the number of megapixels per CM/2. A big number means a relatively small sensor; compact camera size but possible noise.
To be fair though, I don’t have a lot invested in Nikon glass- my best optic being a 28[40mm equiv]/2.8.
I’m quite taken with something like a Ricoh GRD II: 10 MP and a nice little 28[equiv]/2.4…