I just bought a digital camera (arrived on Thursday). I got a Canon Powershot S50. It's got 5 MP, so the quality's very good. Like Matthew said, if you want high quality pics (for printing), 4mp is the minimum. If you only plan on putting them online, aren't interested in printing too much, 2MP is more than enough. The price difference between 2MP and 4MP is quite high though
For storage, compact flash has 1GB cards now! If your camera is also compact flash type II compatible you can get a 1GB microdrive. This is an actual hard disk! The disadvantage is that this microdrive uses a lot of battery.
Right now I'm testing my camera (the disk in it is only 32mb), figuring out how much space a pictures takes and then I'll decide how much extra memory I need. With 1GB I should be able to store about 600 pictures, I don't know if I'll ever take that many.
Sony uses memory sticks, I noticed they're more expensive than compact flash, which is why I decided on a camera that uses CF.
A very good site where you can compare digital cameras, with a buyer's guide (fill in your requirements, they'll show you the cameras) is this one: http://www.dpreview.com
I bought my camera from a German online shop. I noticed the cameras are the cheapest in Germany.