One of the biggest changes between the LX2 and the LX3 is the lens, which goes from a slowish 4X 28-112mm-equivalent to a faster and wider, but shorter, 2.5X f2.0-2.8 24-60mm-equivalent. Whether you want to sacrifice the flexibility of the longer lens for the brighter and sharper, but shorter one, depends on your shooting style.
One of the main complaints with the LX2 was the high noise level of its 10-megapixel sensor. According to the company, the new sensor has larger photodiodes, which boost sensitivity by almost 40 percent--maximum ISO jumps a stop to ISO 3,200 from ISO 1,600--and the sensor has increased saturation by 35 percent. In conjunction with moving to the latest version of its Venus Engine imaging processor, which Panasonic claims provides better noise reduction, Panasonic claims we should see better photo quality from the LX3. And we do. In general, its photos are sharp and saturated. There are some artifacts in CNET Labs' indoor test shots (click through the slide show for examples) that appear in the JPEG, but not raw versions of the photos, which could be by-products of the noise-reduction algorithms.
While the camera supports up to ISO 3,200, you really don't want to shoot at anything beyond ISO 800; for best results, stick to ISO 400 and below. The camera generally underexposes, which you can compensate for, and while the color is good, outdoor white balance tends to be overly cool. Movie quality is OK. Optical zoom doesn't function in movie capture, and--like many others--the camera could use a wind filter for the microphone.
While the Canon PowerShot G10 seems clunky in comparison and the lens isn't quite as nice, overall I think it delivers better photo quality and the lens provides a more flexible range. But like its predecessor, the Panasonic Lumix DMC-LX3 is a solid camera for the peripatetic photo enthusiast once you become accustomed to its quirks.
(Smaller bars indicate better performance)
(Longer bars indicate better performance)