A relative of mine is a world traveler, and she and her husband recently took their new digital camera to Patagonia. It is a Panasonic DMC-LX2 "Lumix". It fits in a pocket. It is not cheap, but take a look at the shots from their trip:
http://picasaweb.google.com/WDKnutsen/Patagonia2008/
If you go a directory up, you can see shots from Norway and Amsterdam. I don't know whether it is necessary to spend $500 to get shots like these (I'm sure it helps to travel to beautiful places!) but I certainly am thinking about upgrading. I might first at least leave my camera on a higher resolution setting (I still typically take "email" snapshots of about 120 kb each, but my camera also has 1, 2, and 3 megapixel options. Dale's camera here is a 10 mp).