Featuring a new "Canon 12.2-megapixel CMOS sensor, DIGIC III Image Processor, 14-bit conversion for smooth tone, gradations, extensive noise reduction technology, and new Auto Optimization for superior highlight-shadow control," the XSi is likely to make a lot of 40D owners a little envious (if not upset).
It's is interesting that Canon would introduce a lower model like the XSi, that trumps it's more expensive, higher-end brother, the 40D, in so many ways. The 40D is fairly new in Canon's line-up, and while a very capable camera, the XSi trumps it in quite a few areas (not the least of which is the sensor) for almost half the price. Indeed, with all the features the XSi offers (not the least of which is the what looks to be the same great AF system that the 40D has), I'd be hard pressed to recommend the 40D over the XSi.
Without pixel-peeping any images, I'm content to say that the XSi will be more than capable of producing top-quality images, likely better than what the 40D is capable of, considering the XSi's new sensor. This leads me back to my earlier comment that a lot of 40D owners might not be too happy upon reading the XSi press release. I don't know why Canon released the 40D so under-spec'd in comparison to the XSi when they obviously knew it was coming, but as a consumer, it doesn't leave me to happy about having spent a lot more money on my 40D's only to have the XSi announced at almost half the price.
Anyway, enough about the 40D. The XSi looks to be a truly amazing camera for the money. The price of DSLR's just keeps dropping, and it amazes me that you can get a camera as fully featured as the XSi for only $899.99 USD.
One of the changes the XSi brings is the move away from Compact Flash to SD cards. While this may be annoying to some (likely pro's who want to use the XSi as a back-up), I doubt the XSi's target market will mind at all. Most consumers are used to SD cards, having used them in their point and shoot cameras, cellphones, GPS units, and other electronic gizmos. The fact that the XSi uses SD will be a plus to them, as they likely already own an SD card or two and are probably more familiar with SD than CF. And for the pros missing the Compact Flash, SD cards are so cheap these days, it's really not a big deal. Buy a couple of 8GB SD cards and be done with it!
The XSi also uses a new "high capacity" Lithium-Ion 1080 mAh battery called an LP-E5. I don't really see the point in this, but then I suppose Canon wants to make money on all the extra batteries it will sell as XSi owners have to buy extras because their XT and XTi batteries don't fit. I'm all for sticking to a limited amount of batteries in a product line. Canon has to be commended for doing this with their 20D, 30D, 40D, and 5D lines. They all use the same BP511 battery which is great! So why did they change up the battery in the XSi? I'm sure they'll quote advantages of longer battery life and such, but my XTi batteries last plenty long. My guess is money. Shake up the battery line and add a new revenue stream.