JPEG image quality has much improved in the G3 over the G2 and many of the earlier Panasonic models.
Our test shots for the G3 at varying ISO sensitivities look much better than those of the G2 in part due to the much-improved JPEG processing of the Venus Engine FHD over its previous incarnations (since the necessary raw codec isn't available I can't yet tell if the image comes off the sensor cleaner). Photos look good up through ISO 800, with just a little softening from luminance noise reduction kicking in at ISO 1600.
The in-camera distortion control does pretty well straightening out the curvature of the lines, but it leaves just a smidge of vertical distortion that makes it appear as if the camera wasn't parallel to the wall.
I was not impressed with any of Panasonic's creative effects, in part because they're almost completely automatic--you can't adjust the intensity of the effect--and the results are pretty boring. (top Retro, bottom sepia)
The High Dynamic effect isn't HDR as its name might imply. Then again, I'm not sure what it is. As described in the manual "This is an impressive image effect that adjusts dark areas and bright areas to appropriate brightness, together with enhancements on colours." It looks like it just bumps up the contrast and saturation. (Inset is the straight photo.)