I'll confess, I've got a shelf of small cameras obtained during my search for the holy grail. So far I haven't found it.
I'll break this down into my top three I already own, and the top three I'd try on todays market:
1. Fuji F30/F31.. Superb small pocket camera way ahead of it's time. I still grab it from time to time, but I often put it back on the shelf as it's one of my only cameras worth more used than I paid for it new. It's a cult camera to some.
2. Sony NEX-5 with the 18-55 and 16mm. This is a smart APS-C sensor camera with decent lenses (the 16mm is far better than the 18-55) and an interface more suited to those coming from a PNS than a real camera. I do like it, image quality is very good, shallow DOF is easy to obtain, but I'm not at all fond of using a LCD as a viewfinder. Still, you can currently find them with one or both lenses on Amazon in the $400 range and that's hard to beat. My wife loves it. She picked it up one day and figured it was designed just for her.
3. Fuji x100.. in my view the best 'overall' (for my uses) coat pocket size camera on the market today. It's a photographers camera, does better at high ISO's than my Canon 5d2, has a superb 35mm (equiv) F2 non-detachable lens which is easy enough to obtain a shallow DOF with if you get real close to your subject. The controls are SLR old style, aperture ring on the lens, shutter and EV dial on the top. Metal dials. Image quality is right up there with the best APC-S DSLR's. It has a decent optical viewfinder you can switch to a really nice EVF with a flick of a lever and it does live view on the LCD as well. I'm told it has some quirks, but so far for my uses my only complaint is the one I have with all these cameras.. a somewhat slow AF.. Oh, it's WB sensor and metering is second to none. Either is the price..
New Cameras I'm thinking about owning
1. Sony NEX-7 with the new lenses. This solves, at least on paper, most of the drawbacks of the NEX-5.. and I really like that articulating LCD for waist level shooting. I'm really interested in this camera.
2. Canon S100. It's a small truly pocketable camera with a decent F2 lens, very solid construction, and decent high ISO performance.
3. I'm tempted by the Ricoh GXR system.. but probably not enough to ever buy one.