The E-PL1 delivers noise performance on par with most similarly priced dSLRs, though it doesn't match the noise leader, the Pentax K-x. You can shoot pretty comfortably up through ISO 800; at ISO 1600 things start to soften and detail starts to degrade under color noise. Like most in its class, ISO 3200 is really an emergency option. Interestingly, I found the noise profile of the E-PL1 better than that of the more expensive E-P2.
Olympus' default noise reduction for its JPEGs is pretty good and tends to be a little sharper than its default settings for raw (using its mediocre bundled ib software), which errs on the side of too much color noise.
(1/60 sec, f2.8, ISO 3200, ESP evaluative metering, AWB, Natural picture mode, 17mm lens)
At its widest, 14mm (28mm equivalent), Olympus' standard Micro Four Thirds kit lens displays noticeable, but not egregious, barrel distortion. (i-Enhance mode, 1/200 sec, f6.3, ISO 200, ESP evaluative metering, AWB, 14-42mm lens at 14mm, Guided Mode Bright +1)
With sharpness set to normal--the setting in the default Natural picture mode--the E-PL1 renders crisp, but not oversharpened, details. (1/60 sec, f2.8, ISO 100, AWB, ESP evaluative metering, Natural picture mode, 17mm lens)
If you can't immediately spot the differences among these, it's not you--they're unusually subtle, even within this line of cameras. I think the choices are excellent, though; usually, the variations are so pronounced that you can't use them without shifting colors horribly.