I hate when sales people tout a compact camera's "digital zoom." This term has misled almost as many new buyers to a mediocre camera as the "more megapixels are always better" mantra. The plain truth? Digital zoom is really just in-camera cropping, providing no added resolution or image-quality benefit.
But if your goal is to make the highest-quality enlargements at the extreme telephoto end of your camera (common among wildlife and sports photographers), are you better off buying an 8MP camera with a 6X optical zoom (35-210mm equivalent) and 2X digital zoom, or a 6MP camera with an 8X optical zoom (35-280mm equivalent)? If you chose the 8MP/6X, you're wrong.
Here's an illustration that shows how a 70mm increase in optical zoom provides greater detail at the extreme tele end than a 2MP sensor increase does. This holds true if all other factors are kept equal, such as the quality of the lens, the aperture range, and camera's image processing. (And to get similar enlargements, the 8MP image would have to be cropped to the same field of view as the 6MP image before comparison -- a process done in-camera using the 2X digital zoom.)
More optical zoom can be better than more megapixels. Frame (A) is a photo taken by an 8MP/6X camera at 6X (210mm). Frame (B) shows 6MP cutoff for cropping, but a 6MP/8X camera set to 8X (280mm) captures 6MP resolution at (C).
The optical advantage actually increases as the focal-length range decreases, so a 6MP/5X camera would deliver even more detail at the tele end than an 8MP camera with 3X optical zoom and 2X digital zoom.
In practice, a 6MP/8X camera should be able to capture images at its 280mm (8X) setting that nearly equal the resolution of images shot with a 10MP/6X camera set to 210mm (6X) and cropped to the same area. This assumes the camera is mounted on a tripod or has optical image stabilization. When the camera is handheld, zooming in accentuates camera motion and vibration, so a 70mm difference in focal length could create a slight difference in sharpness with 8x10 and larger prints or close-ups on your computer.
On the other hand, 8- and 10MP sensors in compact digital cameras often show higher noise levels than 6MP sensors, especially at ISO settings above 200. Noise tends to obscure fine details, and most noise reduction features blur the image to make noise less visible. So the 6MP/8X-zoom camera will still have an advantage at higher ISOs, despite any motion blur caused by the longer focal length.
Understanding the relationship between optical zoom and megapixels helps clarify how "digital zoom" really works and why I hate the term. In most cameras, digital zoom crops in on the image at the longest focal length of the lens. Then the camera's image-processing engine duplicates pixels and adds sharpening to give the illusion that you've taken a photo at your highest megapixel setting. But a closer inspection reveals the decreased detail.
As consumers cotton onto the benefits of optical zoom, camera manufacturers are following suit. Panasonic started the trend in 2005 by accurately reducing the resolution of digitally zoomed images in its 12X Lumix DMC-FZ30, and Canon recently added a feature called "Safe Zoom" to its flagship compact, the PowerShot G7 ($500, street), a 10MP with 6X (35-210mm equivalent) zoom. Using Safe Zoom, the G7 provides the equivalent of up to 14X zoom, albeit at a low VGA (640x480) resolution. With these cameras, you can now decide at the moment of capture whether to use the digital zoom for cropping or whether to do it later in an image-editing program.
I prefer the latter for the control I have over composition, image contrast, and sharpening, though it takes longer than doing it in the camera. The choice is yours, but next time you hear a spiel about great digital zoom, you might want to zoom in on another, sharper salesperson.