After returning a Canon G10 that suffered from a misaligned lens (here) I’ve been using another copy for a couple of weeks now, and like it. I feel confident that I can print low ISO images at more or less any size without a problem. Granted, this requires good technique and Photoshop skills, but my point is that I do not feel any more limited re print size with this camera than with any other digital camera that I used (including a Canon 1Ds, Canon 5D, and others). To some extent, I even prefer the “grittier” character of small sensor cameras to the hyper-clean files from the latest DSLRs.
Two points I want to make: First, with the G10, if you shoot in raw format, you should use Canon’s own software DPP (it comes with the camera). That’s because, from G10 raw files, the Adobe raw engine creates blotchy, meshy noise patterns for anything above base ISO, even if you spend considerable time applying optimal noise reduction both during the raw conversion and in Photoshop. This is somewhat unfortunate – Adobe Lightroom has really grown on me, while in comparison Canon DPP feels like an ancient tool from the early days of digital. But with DPP and careful adjustments you can use the camera up to ISO 400 with confidence, and even up to ISO 800 if you really have to. Lightroom, on the other hand, is fine only at base ISO.
Second, the alternatives. The Panasonic LX3 is not for me because I mostly use longer focal lengths. In my opinion, the G10’s main competitor is the new Panasonic G1. While with the current lenses the Panasonic is larger and clearly not pocketable, almost everything else (image quality, speed, versatility, and arguably the interface) is preferable. My main reason not to get the Panasonic at this point is that I don’t buy first generation products on general principle (maybe a mistake in this instance, since there seem to be no known issues yet), and because I am more interested in the Panasonic lenses that will come out next year (a fast and minute “pancake” lens, and a presumably very good zoom lens that covers the entire range from wide angle to long tele).