More megapixels are better, but that doesn't mean that a camera with a higher megapixel rating could create worse quality images than a lower megapixel rated camera.
Actually, in 99% of cases, that is exactly the case - with the same sensor size, a sensor with more megapixels will give worse images than the one with less. Reason: with increasing pixel count, the sensor density increases, and with that - noise. No matter how many pixels you have, if the whole image is covered in colored dots, it looks like shit, and there's very little you can do about too much noise.
A rule of thumb for maximum number of pixels that won't have an effect on quality is:
- 8 MPix for a compact camera/hybrid
- 12-15Mpix for a DSLR with APS-C sized sensor (everything except Nikon D700, D1, D2, D2x, D3, D3x, Canon single-digit models and Sony A900)
- 15-20 Mpix for a DSLR with full-frame sensor (all the ones specifically mentioned above)
Of course, ISO and noise performance may vary between models due to different image processing algorythms and different technology of the sensor (CMOS is better than CCD - a 12Mpix Nikon D300 has smaller noise on ISO 3200 than a 6Mpix D70s on ISO 800).
As for what to buy:
- if you're just looking for something to shoot pictures at parties, grab a small compact camera that will fit in your pocket; however, buy one that allows you to use manual exposure settings - this way, if you get more into photography, you'll have more control over your pictures. Also, look for something that has the lower focal length as short as possible (less that 30mm in film equialent is perfect) - it'll help a lot with indoor shots. A hotshoe for an external flash is an added bonus.
- if you know you'll get seriously into photography, grab a DSLR. If you don't want to spend too much money, or need something small, get something from Olympus (the new E-620 is sweet), they have the best value for money. Pentax is kind of a niche system, but it has some interesting points.
Canon and Nikon are the two biggest brands with the widest selection of bodies, lenses and accesories. I'd say they are priced about the same, and have similar features, so the choice is more in ergonomy. Nikons are built like tanks - rather big and bulky, tough, very well laid-out, easy to use. Canons feel lighter and flimsier, but they're still tough and solid. I don't like the layout of Canon bodies, though - some things are hidden ridiculously deep in the menus, while in a Nikon I have them available at my fingertip (for example, flash sync modes).
The choice between Canon and Nikon is mostly about personal preference. You need to hold some cameras yourself to see how they suit you. The more important thing is to look through the lens selection, and seeif there are any lenses you like in either system - if yes, go for it. In the end, it's mostly the lens that decides about the quality of the photo.
Oh, and don't buy a hybrid camera (a compact with a huge zoom) - they combine all the flaws of compacts (shitty optics and sensors) and DSLRs (size weight, price), with none of the advantages.
Internal Vs External Zoom:
External is when the lens extends outwards form the camera, and moves in and out as you zoom. These have little motors and are susceptible to dust getting in the cracks and jamming the works. They are also the most common, if you get one of these get a case to keep the dust out.
Internal, The lens doesn't extend, you find it in most "flat" cameras like the Sony T series. None of the weakness of the Externals, but you'll pay more for them, Especially if they zoom higher than x3.
Every autofocus lens has a motor, internal or external focusing has nothing to do with it. There has to be something that moves elements of the lens as the camera focuses. In Nikons the motormay be located inside the body, driving the lens via a screw in the mount.
If you've got any seriousness about photography - do yourself a favor and get a DSLR - don't waste money on a point & shoot. You'll thank (us all) later.
Actually, apart from my D300 and lensses, filters, etc. I always have a small point and shoot in my pocket. Sometimes it's impractical to use a DSLR, or I just don't want to wave one around (or I might violently part with it), or it's in my backpack and there's no time to reach for one, or I have the wrong lens, or whatever. In these cases a small, handy camera that's readily available can make a difference between taking a shot and missing one.
Besides, often I don't feel like taking the D300 to a party - I don't need that much quality to take pictures of a drinking contest, and if something happens to it, my bank balance will suffer

The main difference between THIS camera and the D80 - is it only works with DX lenses.
Ummm... both the D40x and the D80 (and any other Nikon APS-C camera) work with both DX and FX lenses. The difference between the two is that the D40x lacks the AF motor in the body, so with some lenses you're stuck with manual focusing (examples include the awesome 50mm/1.8 G, which is one of the best lenses Nikon has to offer, and one of the cheapest ones). Also, in both the exposure meter won't work with old MF lenses, tho they'll still take perfectly good photos and focus confirmation works - you'll just need to set the exposure manually using an external meter or trial and error.