This is an extension of sorts to my first review of my Panasonic GF-1. I've been using it since Christmas and can now more safely say a number of things about using it in environments from studio lighting, dimly lit parties, and full sun plant photography.
First off, I've found myself wishing for a greater degree of dynamic range in almost every circumstance. After using my µ4/3's exclusively for many months, I went back to some older raw files from my EOS 20d, and then also shot with it for a day and was immediately struck by how much deeper and richer the colors are. Working in raw, as you all know, goes a long way towards eliminating that issue, but it never fixes it entirely.
I guess that I can't complain too much. My 20d in almost any configuration is huge compared to the GF-1, and those benefits in size had to come from somewhere. The sensor is at its best in well-lit rooms and studio lighting. It's at its worst in low-light and full sun, where the sensor frequently gets washed out. This was hit home today moreso than most other days. I was trying to take landscape and plant photos, and the deep shades of green and blue were terribly represented. Worse when you're handling flecks of bright sunlight over a shadowed surface. It is IMPOSSIBLE to not blow out the highlights.
I can say without hesitation that if you're going to be doing any shooting in a park or at the beach on a sunny day, you'll have difficulty with a µ4/3's camera. I've also found that high-frequency images like dense plant cover with lots and lots of leaves can get rather muddled on the 4/3's smaller sensor.
I still stand by my statement that µ4/3's is the best choice for a family camera system. It's cheaper than any APS-C cameras from Canon, Nikon, or Sony. And importantly, both Olympus and Panasonic are expressly dedicated to making the 4/3's system a robust and complete system. Where Nikon seems content with offering total crap for the APS-C format, and Canon offering only slightly less crappy crap, Panasonic and Olympus are putting out a wide selection of zoom and prime lenses. Olympus has produced the superlative 50mm macro, and Panasonic has put out a lens that's significantly wider than anything I figured that they would produce.
So while there are technical limitations to the format, the dedication shown by the primaries behind 4/3's pushes it into the pro-sumer lead. Canon's 7d is excellent, but they still haven't provided any glass to back it up. Likewise, Nikon is putting its development muscle behind full-frame cameras and lenses and providing little in the way of cheaper cameras. So if you're less than a pro, but more than a teenaged girl, Canon and Nikon are a decidedly mixed bag. You just don't get the dedication from the company. I suspect that it's because both companies have that high-end that they are entirely terrified of cannibalizing.
So to finish up this long and rambling post, if you aren't a teenaged girl and a compact camera just isn't enough, 4/3's or µ4/3's remains my hearty recommendation. I wish Canon would put more behind APS-C, but as in many industries, the market leader is loathe to disrupt its cash cow. It takes a smaller player, hungry for market share, to push innovation ahead. If Canon or Nikon ever take their smaller, cheaper cameras more seriously, the dynamic range and added detail of the larger sensor would make them tasty indeed, but as it stands, the prices and lenses just don't add up.
UPDATE, LIKE, ONE DAY LATER: Oh! I almost forgot to add, you also can't look to other manufacturers for quality glass. Sigma and Tamron are the only third-party companies producing a wide selection of APS-C, and their lenses generally stink. The absence of good lenses for APS-C, except for the excellent Canon 15-85mm, and the fact that APS-C lenses will only ever work for APS-C bodies means that you'd want to splurge on full-fram lenses, where both Canon and Nikon offer a huge range of jaw-dropping pieces. Look at Canon's $99(!!!) 50mm F1.8 lens. On a full-frame body, it's a fucking steal and as close to a high-quality, disposable lens as you'll ever get.
So an addition to my earlier recommendation is that, if you find that 4/3's isn't cutting the mustard for you, skip APS-C lenses and go straight for full-frame. It might take years of additions and more money but the jump in quality is significant. While you save the $2,000+ that you'll need for a full-frame camera, you can even buy a used APS-C camera, on which full-frame lenses for the same manufacturer usually work.
As far as brands go, Canon and Nikon are neck-and-neck in full-frame stuff. Canon squeezes more detail, but high-ISO is startlingly good on Nikons. If glass is your primary concern, Sony is the only company that currently offers Carl Zeiss lenses with autofocus. I can't describe how much I love Zeiss. Zeiss' colors and sharpness are nothing of note, but the bokeh is the best I've ever seen. If you like doing landscape photos, you might be better off with something sharper like Canon, but if you do portraist, interiors, plant and animal life, anything but landscape, Zeiss is the best. This gives Sony a huge advantage in my book. If you couldn't give a crap about Zeiss, Sony's cameras lag pretty much every other major brand.