Image quality can mean different things. It is not only about sharpness and color. It also depends on focus and how you will view the images. Generally speaking, a compact camera (this includes megazooms) have nicer looking photos straight out of the camera. The manufacturers know that P&S images won't be post-processed; they need to look good straight away. A DSLR image on the other hand, often comes out looking "dull," and needs to be tweaked before they will look their best.
Until you start learning and experimenting with the exposure controls, the camera will be smarter than you. it's harder to take a great picture with a DSLR, because its auto mode isn't as smart as the auto mode of a compact camera. Compact cameras can detect what kind of scene you are shooting and adapt their settings accordingly. Most DSLR cameras can't do that; they only change the exposure parameters.
Image quality is highly dependent on how you will view the pictures. If you only print up to 8 x 10, or view your images to fit a 15" screen, just about any camera is up to that task. A DSLR's extra detail and image quality is only apparent if you view the pictures in their native size.
Still debating on whether to go with an entry level DSLR or a megazoom. I want a very good zoom but great quality picture. My current old P&S isnt very good. I also dont have a camcorder so my camera will be used for video alot also. Since my budget is $350-600, I am wondering if I should get a top rated Megazoom (canon xs40, Panasonic fz150, Nikon P510) Still cant decide between them. Then a few years later maybe I can afford to get a better DSLR with a lens that will zoom like I want. Any thoughs and advice would be great.

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