This really bugs me!
We all have our 'perfect' camera, (be it a Nikon D3s or a P65+). However, most of us would like a small, decent quality point and shoot with decent image quality.
Some of us have gravitated to M4/3 - or the Sony Nex etc. this is a splendid new format, but it isn't really very small when you put on anything but a pancake lens.
Alternatively one can use something like a Canon G11 or a Panasonic LX3 or a Ricoh GRD. This inevitably has an impact on image quality because the sensor is so small.
There is a huge gulf in sensor sizes - they are either quite big (which includes APS-C and micro 4/3, or else they're tiny . . . why can't we have something in between.
dPreview have an interesting 'pixel density' figure which gives one a really good idea of the sort of results you could expect from a 'state of the art' sensor - here are a few figures which illustrate my point:
n.b. I've rounded figures so as not to muddle things with decimals.
Lots of people like the G11 and the Ricohs - quite right too, but the area of their sensor is about 1/6th of micro 4/3.
There is such a huge mulitplicity of cameras out there - seems to me that an interchangeable lens setup based on a sensor which was something like 12 x 8 would allow really acceptable 'second camera' quality in a very small package.
Whichever way you look at it, that gulf in size between the m4/3 sensor and the G11 sensor must leave scope for something pretty good somewhere in between.
all the best