I recently purchased the Panasonic Lumix DMC-GF1. At first, I was skeptical of its capabilities. Having been spoiled by my D700, I didn't really think a tiny camera with a much smaller sensor would really produce images that I fall in love with. Having used the camera for about a week now, I have to say that from a pure image quality perspective, the smaller sensor does limit the technical qualities of the images. However (and this is important), the GF1 is so fun to carry around, so fun to use, and so fun to shoot with, that I end up with a lot more fun and memorable shots with it.
Going back to my first point - from an image quality standpoint, the GF1 is still shockingly good when shot at low ISOs. Coupled with the Lumix G 20mm f/1.7 lens, you can get some very good images with good bokeh.
ISO 100 @ f/1.8, 1/4000s:
ISO 100 @f/1.7, 1/1250s:
Not bad for a camera that easily fits in the palm of your hand, right?
Next, when I have a chance, I will demonstrate the superior video recording capabilities of this little machine vs. the D5000...