kentr

perhaps this is too obvious, but what about the unsharp mask you say you are applying. before this has any sharpening effect on any element of your image, it will accentuate any visible grain.

well, very generally i'd say that a late model/high quality p&s is capable of making pictures that reproduce well at magazine or smaller size. so, given a great shot, spot-on exposure at a low ISO, minimal destructive editing...you can do it.

 

here are the main limitations of the p&s cameras:

 

1) most don't offer raw capture, which puts pressure on you to expose very well and get white balance taken care of in advance, since problems are locked in and exacerbated in the compression to jpeg.

 

2) the image sensor in a p&s is quite small which means noise issues arise very quickly as you increase the ISO sensitivity.

 

3) the lenses tend to be of a lesser quality, with more vignetting/falloff, chromatic aberration, and pincushion distortions.

 

there are p&s cameras that offer manual controls, but raw and fast/sharp lenses are hard to come by (the old canon G6 was good for both of these).

 

in the end, i'd say that you might be best off spending a bit more than you would on a high end p&s and getting the canon rebel xti. with a kit lens you'll still be well under $1k and you'll get beyond issues 1&2 above, with an advantage in #3 and all of your old lenses to try out (be aware, the sensor in the xti is smaller than 35mm film, so you'll have to multiply your focal lenghts by 1.6 to get an idea of the translation).