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it really depends what you're shooting and what your final delivery is. If you just want to email photos around, VGA is fine. If you want to print, I go high or go home. I shoot max resolution on all my cameras (5MP in "extra fine" on my DigitalElph, RAW in my D70) because I sometimes end up printing at 8x10 (which I'm doing right now actually). For that I think 5MP is about the minimum I'd go, but I end up shooting a lot of macro stuff so detail matters. For landscapes and small subject matter, you can get away with less.
5 years old is a long time in the digital camera world. For $200 you could get something that would blow your old camera out of the water wrt image quality, etc. I generally like to avoid "disposability" but to me 5MP is a cutoff. If you're running less, it is a worthwhile time to upgrade (and get a BIG storage card).
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