David,

I shoot my cousins often, and I couldn't imagine doing so with a point
and shoot. If you liked the DSLR just for Christmas, you'll grow to
love one after just two weeks of use. Make the investment.

The 400D and D40x are wonderful choices, but I'd look at other
options, namely from Sony and Pentax. I wouldn't necessarily recommend
these options if you were planning on buying into a system, but if
you're looking to buy a camera and lens to use for the next five or so
years without expanding your system, these options will do fine for
your needs. The advantage of these brands is that their cameras are
including in-camera shake reduction which will help you shoot indoors
without a flash at lower ISOs.

I'd look at the Sony A100 / Pentax K100D if you don't need to print
bigger than 8x10 and will mostly print at 4x6. If you feel you need
the ability to print bigger, look at the new A200 or the (likely to be
released soon) K200D. Whichever of the four systems you buy into, I'd
skip the kit lens. If you need a zoom, I'd stick to the 18-70 for
Nikon, the 17-85 IS for Canon, the 16-45 for Pentax, or the Zeiss
16-80 for Sony (that last one is a bit pricey, but a great lens). If I
were you, though, I'd seriously think about how often you're shooting
at the wide end of what you're used to and wonder if you could have
stepped backwards instead. Similarly, how often have you been zoomed
all the way in and not been able to just walk closer? If the answer is
"not very often" then you should really look into a 28mm or 35mm prime
lens. The pictures I get of my cousins using my Canon 28mm 1.8 lens
wide open, without a flash, are better than I'd ever be able to get
with any zoom lens, no matter how nice. It could be too limiting for
your needs, but shooting in and around the house, as well as duing
outings, usually doesn't need more than that fixed length, and soon
you won't miss the zoom because the pictures are so good. If not, the
four zooms I listed are all pretty great and pretty reasonably priced,
and especially with built-in shake reduction (or the Canon 17-85
included in-lens anti shake), will get everything you want.

But make the jump to DSLR. You won't look back. Everything you loved
will be present with any of these cameras (and with a prime, that
narrow depth of field will be very easy to achieve), and in most cases
you won't need that flash, so that eliminates one of your two
problems. As for live view... you'll get over wanting that.

Will