Well, we ended up getting a digital camera. The Canon Powershot A70. It's quite a nice little camera. We also got a 256MB CompactFlash card, which helped a great deal. The thing takes some nice looking pictures. Sarah took it with her when she went to visit her family this past weekend for her cousin's baby shower. She took quite a few pictures, plus some video. Though the video's only at 320x240, it actually looks rather good. Probably could've gone to 640x480, but we were still experimenting with how much size it'd take up. The lower resolution doesn't take much space at all, really. I doubt we'll do too many videos anyhow, but it's nice to have the option to do little clips (with sound, mind you).
I'm happy with the purchase. A bit pricey, but I think it'll work out great in the long run and it was better buying a nicer camera that we like than one that was a bit cheaper but sucky.