A D50 'replacement' has been expected for a little while now. After the D80, the smart money was on a real entry level model. If it can produce the kind of results people got from the D50 and D70 Nikon will be on to a real winner.
Market wise it's quite interesting because Nikon have placed the D40 solidly in the high end P&S segment. The kit with an 18-55 lens has the same RRP as the G7 from Canon for example. Imo this is a good strategy for Nikon because generally they are quite weak in the P&S segments. Canon still maintains a USD 300 differential between it's most affordable DSLR and the G7.
Nikon may also see this is a great way of locking customers in to the brand because the upgrade path is very clear and easy to understand. On a personal note, when I wanted to upgrade my 350D* from Canon, the 20D at the time and now the 30D never seemed like enough of a step up in features and particually in my case environmental sealing to justify the cost. The 5D was just that bit too much of a leap. Add in the whole conundrum of EF or EF-S lenses and it became quite confusing from the customer perspective. Now with Nikon you can invest in the top quality 17-55 2.8 DX lens for a D40 and it will work on a D2Xs, D200 and a D80. More likely the 18-200 VR or 70-300 VR is going to appeal to the D40 buyer, but the logic is still the same.
Nikon may have a great strategy and great product but it really needs to address it's lens manufacturing capacity and distribution in order to capitalize on it. I'm not sure how much brand/system loyalty there is at USD 599.
*I ended up selling my mid range Canon lenses and buying a D200, confident that I could use the 12-24DX and 17-55 2.8 DX on a D2Xs or it's replacement in the future. I now use the 350D as a P&S with the kit lens, it lives in the boot of the car.
