I want the Nikon 1 so badly! I have a DSLR and not only is it large but it is so heavy! Which is fine if you're going out with the intention of only taking pictures but if you're doing anything else it becomes a huge bother.
The Nikon 1 series has a much smaller sensor and smaller resolution than DSLRs currently on the market. It is also aimed at a consumer rather than an advanced amatuer like entry level DSLRs. So the quality is not going to be the same, although it should be better than a point-and-shoot.
Honestly though, it is far more important HOW you take a photo than what you take it with. If you learn some about photography technique, really focus on light sources (good light can make a picture from a crappy camera look great. bad light will make a picture from even a professional camera crap), etc.... you will take good photos.
For home/family use, I think the Nikon 1 series would probably be good for you because it is smaller and easier to carry around so you're more likely to use it. A fancy camera doesn't do you much good sitting in a closet obviously haha. And if you work on your photography skills, and maybe even learn a little bit about editing, you can get some really nice results.
DSLRs are great, obviously, but they are big and heavy and they only REALLY benefit you if you are willing to learn how to use them properly. Also, they are expensive. There isn't really much point in buying a DSLR with a kit lens, in my opinion. If you're shelling out that much for a camera body you should buy lenses that are going to take advantage of the body's capabilities... and lenses often cost more than the camera body itself. So I don't generally recommend DSLRs for just casual use because they are a lot of work and very expensive and I think that if you focus more on technique than equipment you can get some really great shots with a lighter/cheaper camera.
ETA: For what its worth, I have a 5d mark ii (which is a professional grade DSLR from canon) and I still have my sony point and shoot that I carry with me especially on vacations. Smaller cameras are great because they are so much more transportable. Also I can take it with me places where I would worry about my dslr being damaged or stolen. And I've gotten some amazing photos out of the point and shoot. Generally people can't even tell which photos I take with which camera.
There are micro 4/3rd cameras that are more compact than a traditional DSLR while maintaining a lot of the advantages of one.
Personally I would do the DSLR you have more lens to chose from. Then again ever since I got my DSLR I hate using a point a shoot camera even though I have one.
I would get the DSLR if you are really wanting to learn photography and take better photos. You will have more lens options available and you will be able to do more with it than one that is meant to be more of a point and shoot upgrade. I agree with PP, If you really want to learn photography more and get into it you are better off in the long run with a DSLR. If it is just to take better picture of your family and kids, you could be fine with the Nikon 1 series.
Yep the DSLRs are bulky. I sold cameras for about 5 years and almost everyone that that had a DSLR also had point and shoots for this exact reason.
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So I'm looking to replace my point and shoot with a nicer camera. I have a Canon Powershot G10, so I'm semi-familiar with manual settings. I'd like to really have some more room to practice though. There is just a huge difference between the pictures I take with mine, and when I use my SIL's DSLR, even though her camera is over 6 years old. (The original Rebel).
But now I see compact cameras that have removable lenses, like the Nikon 1 series. They call them an "advanced camera w/ interchangeable lense".
Has anyone had experience using both? What would you recommend? The biggest downside to a DSLR is the size, so it seems on the surface that the Nikon 1 series would be awesome, but will it give me that much more quality in my pictures than my G series powershot?