I went through this decision process about two months ago. I decided to buy a DSLR because of mediocre pictures coming out of my point-n-shoot.
My first piece of advice is this: get a DSLR only if you are ready to make a commitment to learn how to use it. They are better in auto mode than a point and shoot but not enough to justify $700. But when you learn how to make some simple adjustments to a DSLR, you will get better pictures more often.
If you decide to make that commitment, check out Ken Rockwell’s site at
http://www.kenrockwell.com/tech.htm
It is loaded with great advice. Be aware that he is a Nikon guy and will convince you that Nikon is the way to go. The advice I got from photographers at work is to look at Canon and Nikon and skip the rest. Try this:
http://www.kenrockwell.com/tech/nikon-vs-canon.htm
I think the cameras to consider are the Nikon D40 and the Canon Digital Rebel XT. The XTi is essentially the same camera as the XT but with more megapixels and costs a few hundred dollars more. I would go with the Nikon but both are good. Here is Ken’s writeup on the Nikon D40:
http://www.kenrockwell.com/nikon/d40/d40-recommendations.htm
You can get the older D50 at a discount if you want to save some $$$ but it is older technology. I bought a Nikon D50 over the Canon Digital Rebel XT because it felt a lot better in my hands. I might sell it to you so I can get the D40 if you are interested.