I bought this camera a couple of months ago. I've used it on trips to India, Chicago, NYC, the white mountains, and around town. There's no question the image quality is not as good as the 5D that I also use. It also happens to be small, light, and silent. I have been able to get candid shots on trains, in crowded places, in temples, that I would not have been able to take with the much larger 5D. I've carried the G7 into the mountains when carrying a pack of gear just woulnd't have been possible (sometimes you just have to keep up).
All cameras are compromises. Sure it doesn't have RAW, it does have a bunch of preset image processing features that work quite well if you match the preset with the available light. You need to read the manual, you need to practice with it to get the most out of it. Think back to when you shot with Ektachrome, you didn't have the dyanamic range of RAW then either. Imagine if you then had the option of switching from EK, to Velvia, to Kodachrome from shot to shot.
This is a v cool little camera. I think the best analogy would be to the old little 35mm rollei's with the pop-out lens. Of course a Nikon F took sharper images, but sometime tyhe rollei could go places the Nikon couldn't -- like in your pocket or knapsack everyday. Same thing for the G7.