if you want to stay with Canon, the S90 is tough to beat for a pocket camera, and it's within your price range. at 10 Mp, it's got plenty of resolution, a fast lens for shooting in low light or indoors, and by all accounts produces excellent image quality. it only has a 3.8x zoom, so if telephoto shots are on your list, it may not be the best choice, but for most anything else, it should do just fine.
just as important as knowing what kind of camera you want, is knowing what you want to do with it. if you're looking for a nice camera to carry with you on trips, to pull out whenever something strikes your fancy, or simply to record family occasions, a pocket camera like the S90 is probably all you need. if you plan on expanding your options later on, and/or would like to shoot wildlife, or capture action shots, a DSLR might be best. or, if you want the telephoto capability, but aren't concerned with capturing action shots or shooting in very low light, something like the Canon Powershot S3 IS might work for you. it has plenty of zoom, image stabilization, and can be had used for under $200 from Adorama. it's "only" 6Mp, but unless you're planning on making prints larger than 11x14, that's more than enough.
you don't have to spend thousands to get a good DSLR starter set. Jake mentioned refurbished cameras, and that's a good idea if you can find a model you want. if not, you can also consider used. lots of people buy new cameras every time the manufacturer comes out with a new model, so there are always plenty of lightly used cameras on the market. they're a generation or two behind the "cutting edge", but they still work beautifully. Adorama has a number of used entry-level Canon DSLRs for under $400. most do not come with lenses, but you can get lenses fairly inexpensively to start out, and graduate to better quality as your skills improve and your budget permits.