New Camera Quandary

Occean
There have been several similar threads in recent months. A DSLR is a lot more versatile, in that you can add different lenses, external flash, filters and so on. Also the imaging chip is bigger than in a compact, and in this instance size really does matter. There are lots of things to consider though. Once you go bigger than Ixus, you lose the pocketability of the camera, which may mean you don't take a camera and therefore miss the shot of a lifetime. I have 2 Dslrs but often grab a compact to take out, just to avoid the weight of the bigger jobbies.
It also depends if you are happy to just shoot jpegs or whether you are interested in the versatility which shooting RAW brings (along with a lot of extra work on the computer!)
As to the choice between Nikon and Canon, you need to handle both and see which feels better to you. Plenty of proponents for both here. If you are thinking Nikon, you might want to look at the D40x rather than the D40: it offers a higher pixel count and has been reviewed well in several places.
You mention zoom capabilities. The Dslrs come with a medium range zoom as a kit usually, but you can add more telephoto or indeed wideangle with extra lenses, though again they weigh more to carry about. There are some wide-ranging zoomz (ie wideangle to moderate telephoto) available too.

It has been discussed before, but it is much better to think of a camera as a lens with an image capturing device fitted to it. Direct all your research/budget/lust at the lens, it doesn't really matter which box you choose to stick on the back.

A camera is not just a lens with a box stuck on.

The lens/box must together have a utility that works for you.

The resolving power of most lens, to the extent that the majority of people use them, is virtually indistinguishable.

If you want a small DSLR with a huge range of lens both new and old but backward compatible, have a look at Pentax.

Can't agree with the Doc on this one. By definition a compact camera is already matched with a box and there are differences between them. Even with an SLR each manufacturer deals with the incoming picture data with propietary firmware, software and hardware, which does impact on the end result. It also depends what you plan to do with the resulting pictures. If you want to print them to A3 and beyond, the more pixels the better. If you just want to make standard enprints or view them on the computer any current camera will yield more than acceptable results.

I agree with Nigel. Pentax came to the DSLR arena a little later, but their current cameras are very capable and will accept any k-mount lens, which have been around for 25 or more years, giving loads of scope in the used lens market.