Whatever you end up considering, a couple of websites are useful for reviews etc
dpreview and
steve's digicams
I like Canons, but to be honest there are a host of perfectly decent digicams from all the well known makers at very reasonable prices these days. You don't really need 8Mp (if that becomes a deciding factor), mine is only 4 and produces very good images, the limit only comes if you want to crop and enlarge images.
A friend recently picked up a Vivitar very cheap for their daughter, £30 ish, and I have to say that the picture quality is quite amazing (it has a very respectable lens).
Really small ones tend to be a bit more than your budget, less = more.