Thanks to Michael for the confirmation of the Leica rumour I had heard, albeit it somewhat bad news. (I have also heard it reported that Contax has said similar things, in less detail.)
Perhaps the best we can hope for in compact digital cameras is an evolution upwards from the current high end one piece digicam's, towards something like a "Contax G3 digital" [half Contax G2, half Canon G3, half new technology].
The sensor has to be smaller than 35mm format, but could be considerably larger and better than the current 2/3" format and still fit a quite compact body. The lens would probably have to be a permanently attached zoom because no-one seems ready to invest in a new series of interchangeable lenses for such a niche format, but the best zooms now can more or less keep up with digital sensor resolution. An LCD significantly larger than current options, with good sun shading and G3 style magnification of the focal area to assist manual focusing could add a usable option of LCD viewfinder operation, along side a Contax G2 style zoom optical rangefinder mechanism.
With the new low power consumption organic LCD's, there is a good chance that even an LCD covering most of the camera back could have battery changes distinctly less frequent and cheaper than film changes, so big, live viewfinder LCD's could have a bright future along side the non-TTL optical viewfinders needed to avoid the mirror and keep the camera small.
P. S. Michael, does your examination of the Canon PowerShot S50 mean that you are looking for a "go anywhere" digital camera for when the 1Ds kit is inconvenient?