That GF1 looks awesome. It would be even more awesome if they had a flush-mount lens for it to convert it into a really pocketable solution, so as to have a single camera for snapshots and SLR shots.

That is, all of that seems great until you see the price: $900.

There's just enough time to mortgage the house in anticipation of the new Leica models.

Once you put a monster lens on The new Panasonic, what's the advantage of the body being so small? Yes, I suppose new lenses using the new "Micro 4/3" standard will be smaller. But changing lenses on any camera sucks, and on a small camera it's likely most people would want to stick with a single more versatile lens.

Then you also add a significant bulk with the optional viewfinder. The body itself doesn't seem that small in the sample hand-holding images at DPReview either.

It might make an interesting alternative to the Canon G series for some people, but I think this is going to be an ultra-niche product. I also can't respect a press release without a price. Bad show Panasonic, bad.

They do have a "pancake lens" that's small enough. The camera is still too large for most pockets, but it would fit nicely in a variety of belt clip holsters. I don't believe Panasonic has announced prices yet, but its closest competitor, the Olympus E-P1 is selling for $800. The earlier Panasonic G1 is selling for around $640, which is where I bet the GF1 will be around Christmas.

Just keep in mind: this isn't meant to compete with pocket cameras. It's meant to compete with big D-SLRs. From that perspective, it's pretty small!

Yeah, that 20mm lens is small, but I really meant one that would sit within the body housing, or damned close to it, maybe even a collapsible lens body. I think there's a market for people who would like to have both styles of camera without needing two separate cameras, which is what this seems to be. I just think they need to figure out a way to go one step further.

Regardless, I'm in that (probably niche) market, but I would like to see the price be significantly lower.

If you want the lens entirely inside the body, then you're looking at a different class of camera, something like a Canon G10. Any interchangeable lens camera is fundamentally going to have the lens (or at least most of it) hanging out. You even see that with the Panasonic LX3, where they even require you to have a lens cap, since they couldn't shoehorn one in and still have the fancy optics they wanted.

Personally, my solution is to have a compact camera that mostly fits in my pocket (the Panasonic LX3) and another one that's heavy and does everything I could ever want (the Nikon D700). If you insist on having something small and you want the flexibility of a SLR, then this new Panasonic or the almost-equivalent Olympus are the best game in town.

Ken Rockwell just posted a little review of the new Canon SD980is.

If you read past his hyperbole and sometimes tongue-in-cheek comments, you'll see that this little camera can take some outstanding shots.

The 980 is the camera I couldn't wait for, mentioned previously. The 960 which I did buy has been doing pretty well. Haven't had much opportunity to use it yet, but the few shots and movies we did make last weekend were much more than acceptable. It needs a little study time to find where all the settings are made in its menus and then some practice time in lower light situations.

Powershot G11 looks promising.
Here is a specs comparison with the G10.

The G11 looks quite awesome and could make a fine replacement for an SLR during the times you don't want to carry as much kit. Especially since you can still do a lot of stuff with external strobes - if you're into that sort of thing.

It's on my radar for a non-pocket (but small) camera.

I agree on that, and that's one of the reasons I am considering buying one when it gets released and tested by dpreview.com and/or others.
But, I also found, after trying my friend's G10, that to many, including me, it is also a goor replacement for a compact camera. It is small enough to fit in most bags, glove compartments, etc, and Canon makes a simple belt leather case for it, just like for my current Ixus 950IS; in the end, that's how I always carry it when travelling.
Clearly, this is highly subjective. In any case, my two-year-old Ixus 950IS, which I liked overall, is on sale on ebay.