As digital cameras mature, they've become somewhat like computers -- which, in a way, they are, albeit with lenses in the front. With less-expensive technology, camera makers pack in more power and more features -- but the price doesn't drop much.
The newest illustration comes from Canon's EOS Rebel XSi, the successor to the XTi from 2006. Be prepared to pay close to a grand for it. It records images at 12.2 megapixels, can shoot 3.5 frames per second, and the 3-inch screen on the back is so large Canon had to move buttons out of the way to accommodate it.
A couple of other cool features: Canon advertises "Auto Optimization" of pictures (Nikon, similarly, has "D-lighting") -- a bit of processing that brightens dark areas of a picture without blowing out the bright parts. The XSi also has "live view," allowing you to see the picture on the LCD monitor before you take it, instead of looking through the viewfinder -- one of the strengths, and occasional limitations, of SLRs.
Canon, the market leader in digital cameras, was first on the market, back in 2003, with a digital SLR that cost under $1,000 -- although at $999, it obviously wasn't under by much. The XSi, with 18-55mm image-stabilized kit lens, has a list price of $899, although you can buy the body only for $100 less. Get the lens. It's good and sharp, and at that price it's a bargain.
If you've never shot with an SLR, but find that point-and-shoot cameras just don't give you the pictures you want, think seriously about this camera. Color rendition is great, you can shoot action or low-light pictures easily, and shutter lag (the short but maddening delay in many pocket cameras after you press the button) is essentially gone.
If you already own a digital SLR, should you upgrade? If you want the latest and greatest, sure, but if not, and your current camera is working well you may want to stay put. Twelve megapixels are a lot of pixels -- smaller than the droplets of ink a typical printer will put on the paper when you make an enlargement. Many photographers will tell you five to six megapixels -- that's what Canon was selling in '03 -- will do the job unless you make giant prints, or like to blow up small parts of your pictures.
(One note: Is one brand better than another? The consensus is that in this price range, it's a matter of taste. Nikon, Olympus, Sony, Pentax and others make very good SLRs as well. If you've owned one brand, you'll do well to stick with it, if only because the controls will feel familiar.)
If you've had good luck with Canon cameras, and you have the money, you'll like this one. On the other hand, the 10-megapixel XTi is still around -- and the price with lens has dropped below $650.