Do you need the zoom? I replaced my dead G7 with a GF1 and the 20/1.7 lens, once I realized that I shot pretty much everything at the widest (~35mm) lens setting. The GF1 has significantly better image quality, handles well, and the 20mm lens is very good shooting close to wide open. Love it. With the 20 it's not much larger than my G7. Not shirt pocket size, of course....
If you need the zoom, the Panny 14-45 is quite good, but it's a much larger package.