Gewang,
Olympus makes some amazing cameras in your price range. I own a C-740 camedia which was a gift but sold for about $499 two years ago. the main thing I like is that it has a 10X optical zoom. It has a lot of ramge but doesn't go higher than 400 ISO. My buddy owns an Olympus as well and really likes it. IMO, megapixels are not as important as high optical zoom.
i generally agree that optical zoom is a very important factor, but i personally would not buy a camera with less than 4 mpix these days and would shoot higher. additional resolution gives you better detail and if you want to do some cropping in post, you get extra room to do so. I personally like canon's digital cameras, I'm on my 4th (digital elph, digirebel, 10d and now 20d). the canon Digic processing chip is excellent. if you can get one with the Digic II chip you are doing well.
this looks like your best choice at $500, but may be a little big:
http://www.bestbuy.com/site/olspage.jsp;jsessionid=DITM2K1K1VYIBKC4D3EFAFI?skuId=7175353&type=product&productCategoryId=cat15146&id=1110266874825it has a 5.0 mpix digic II chip with a 12x optical zoom and image stabilization. numerous advanced modes if you want to go beyond just point and shoot operation.
there are some 7 mpix cameras on the market now. the additional size of these photos may be too much to deal with and lead to more expensive media cards, etc. However, you can always choose to set a lower resolution (try not to use the higher compression though, you will get artifacts). that canon i linked to has a much better lens than your typical p&s. it has a usb 2.0 interface which is nice for transferring pics if you don't have a dedicated reader.
if you have specific questions, feel free to PM me.