SLR or point and shoot? That is the question
First of all, think about what you are going to use your digital camera for. If you are just a casual photographer who will take photos occasionally and casually, i.e., not as a hobby where you want to develop your photography skills, and if you will mostly view these pictures online or as small prints, then there is really no reason to buy SLR cameras. One often sees tourists walking around bogged down with heavy and high quality SLR cameras, and all they're doing is snapping casual photos of the landscape and their friends and family. They could have saved themselves a lot of money and probably a backache by sticking to a point and shoot camera that is lighter, cheaper and easier to use. The best point and shoot digital cameras these days produce excellent images, and have fully automated options that make taking quality photos a breeze even for those with little interest or experience in photography.
If you are a serious photographer, or looking to improve your skills, deciding between SLR or point and shoot is a more complicated issue. The best point and shoot digital cameras these days do have many fancy features that make them almost "SLR-like" in many ways. These so called prosumer cameras offer fully manual settings in addition to the default automatic mode, which allows you to play with things like color settings, aperture, shutter speed, ISO settings and manual focus. Furthermore, these are often super zoom cameras, which can have a versatile built-in lens that goes from wide angle to beyond 20x zoom! For a digital slr camera, you would need to carry several bulky lenses to achieve this range. Furthermore, a digital SLR camera itself is heavier and more bulky than most point and shoot cameras, even the super zoom cameras.
In that case, you may very well ask, why even consider a digital SLR camera? Well, impressive as they are, even the best point and shoot digital cameras cannot quite offer the image quality of even a relatively cheap digital SLR in low-light and other challenging conditions. While under optimum light conditions you can get very good results with a point and shoot camera, you cannot quite get "National Geographic" caliber photos with it. The limits of point and shoot cameras are also likely to be more apparent if you try to blow up the images taken by them to poster size. In this case, they are likely to look more pixellated and coarse. This cannot be overcome just by having more megapixels, as the issue here is sensor resolution. Even the best point and shoot digital cameras have smaller sensors than SLR cameras, which limits the quality of the images they take.
Some other things to consider as you are trying to decide whether to buy SLR or point and shoot :
SLRs are much more customizable than point and shoot models, thanks to the many different lenses and other accessories (including flashes and filters) that you can outfit them with, which can really allow you to get pretty serious with your photography. Of course, all this equipment (and the SLR camera itself) don't come cheap.
Owing to the larger sensor on an SLR, it is more effective than a point and shoot at higher ISO settings, leading to faster shutter speeds and less grainy photos.
SLRs have optical viewfinders, so you can see the image you are about to photograph directly through the lens. With point and shoot models, you are usually looking through a digital viewfinder, so you can't really see the shot you are composing quite as well. Also SLR's give you greater control over depth of field, letting you take shots where everything is in sharp relief, or alternatively, just the focal object is sharp while everything else is blurred out intentionally.
There are other things to consider, but some of the main considerations are listed above. So, should you go for SLR or Point and Shoot? If you have the budget, and the interest in serious photography, and the willingness to go through the learning curve associated with using an SLR camera, then I would recommend going for one. If you are more of a casual photographer, or are interested in getting your feet wet without totally committing to serious photography, then consider buying one of the prosumer cameras that are among the best point and shoot digital cameras. It will let you get a feel for serious photography on a budget, and once you've mastered your point and shoot, you will be ready to commit to an SLR if you want to further pursue photography. I hope this digital camera buying guide was helpful!