I would recommend the Canon S200 for a first digital
$350 incl 128 meg CF card
It's rugged, has automatic lens cover, metal case,
fits in the shirt or pants pocket comfortable (no matter
what you end up with fancy camera wise, with
something that you will carry all the time, you'll
take lots of photos!)
2 mega pixel 2:1 zoom, audio, movies, USB, video out,
fast charge LI ion battery
I've used Kodak DCS100, Olympus C-700, Canon D30,
Sony Mavicas(assorted). The S200 is the best all around
for snapshots, travel, and unplanned photography.
Ginger flower, old pali highway trail, Oahu, last month.
http://www.dpreview.com is a good resource prior to
camera store visit.