What is the best new digital camera I can get for about $500 or less?

It's a graduation pressent, and I want to get a very nice camera for someone.

Hands down the Canon S3IS is one of the most versatile cameras on the market. The zoom feature is amazing and the videos are great. And it won't break your bank! I have the S2IS and am delighted with it. I recently bought a Digital Rebel XTi for more detailed work but that will run you quite a bit more than what you have budgeted. My S2IS is still my camera of choice for ease of use and everyday photos.
http://www.dpreview.com/reviews/canons3i...

Amazon has a great kit deal...
http://www.amazon.com/Canon-PowerShot-S3...

If you can find a Canon EOS Rebel digital for that price, you'll definitely get some props.

Oh, I just bought a panasonic for about 350 for my friends wedding gift.
They love it.
It is very compact ans has a very wide display on the back.
They also said the software that comes with it is very good.

I like the Cannon Powershot S2 IS, but its getting a bit old, the S3 IS is newer and quite nice (12 x optical zoom is quite nice for those longer shots)

If they are semi into photography, perhaps a Canon G7.

http://www.dpreview.com/reviews/canong7/

It's Canon's 'flagship' compact. Although- it may be overkill for most people.

I would recommend a Canon Powershot .