Canon D40 or D50?

Oops, sorry. I should've included that. I have the regular 18-55mm lens and 75-300mm zoom lens, along with speedlite 580EX. I know I don't want to switch brands.

As for wanting to switch, I made the fatal mistake of taking my Rebel to the beach and got sand in it. The cost of repairing it isn't worth the cost, so it'd be better to buy a new body, which makes me want to look at possibly upgrading a little.

I've found out that a D50 actually has a larger LCD and users swear that it has better image quality than the D40. The price is actually fairly close, so I'm leaning a little toward the D50, unless someone has any other recommendations.

The 50D isn't that much more expensive than the older 40D, so I'd go with it just for the LCD and the micro-adjustment for lens.

If you really want to make a difference in image quality then you should really look at finding replacements for both of your lens. The 18-55 non-IS kit lens was very poor, even for a kit lens, and the 75-300 is the worst zoom lens that Canon currently produces. If you want a difference in image quality then I'd say to start from scratch and probably choose a lower camera body so you can get some better lens.

For the price of the 50D, you could buy a Canon XSI with the much better 18-55 IS lens, the 55-250IS lens, and a 50mm F1.8 for indoor/low light without using the flash, and that'd still be less than the 50D body alone. You can upgrade your body, but your lens are going to be weakest link in the chain and bring down the image quality of any of the cameras.

I have Canon and willy/want stay with it, but with your lenses, you have the option to start scratch because those lenses aren't very good. I brought up the XSI because you didn't say what things the XT was limiting while using it. Buying the higher range cameras won't give you better image quality, it just gives you more features, and if you don't need those feature then you're just buying a higher priced camera to fulfill some need that is not related to photography.

Didn't see you had the 580EX. Yes, I'd definitely stay with Canon, but I still suggest you look at one of the Rebels and get some decent lenses.

Agree with kalel33, upgrading lens will improve your image quality more than upgrading the camera body.

There is not a huge difference in performance between the entry level D-SLR vs 40D, except for the faster speed (fps) and better AF, only important if you routinely shoot fast actions.

But there is quite a big difference between the regular EF-S 18-55mm kit lens vs the EF-S 17-55mm f/2.8 IS. The 17-55mm f/2.8 IS lens not only has better image quality but can also do handheld low light shots that are very difficult or impossible for the 18-55mm lens.

From the list of your gears, you probably seldom do low light actions, but may do a lot of flash photography. If you don't need a large aperture lens and you are on budget, then you can consider the following lenses:
EF 17-40mm f/4L
EF 70-200mm f/4L
Or Sigma has some moderately priced f/2.8 zoom lenses

The Canon EF 24-105mm f/4L IS is very good and moderately priced, but it is neither wide nor long enough as a single lens for the APS-C size sensor. It is more suited for a full frame body.

If I were you, I will not buy another 18-55mm IS lens even though it is slightly better than your old one, and I will not buy another 70-300mm lens. Getting the wide aperture lenses will improve your image quality and open up more photography possibilities. If you do indoor or low light action photos or need a better bokeh effect for portraits, then you may like f/2.8 or wider apertures, but these usually cost more. If you don't need very wide apertures, then the f/4 lenses can be a pretty good bargain comparatively.

There is not a lot of difference between 40D and 50D, except the center AF point of the 50D is more sensitive for f/2.8 lenses, which won't matter to you much at this point. But if you have a fast zoom tele with f/2.8, and you do a lot of lower light action photos, the 50D is a better choice. The bigger LCD is not that important, and won't improve your image quality. Anyways, you still won't be sure about the sharpness of your shot until you look at it on the computer screen.