Not too long ago i bought my dad a digital camera for his birthday, resulting in me purchasing a Fujifilm FinePix A820, at about $98 Australian at the time. The camera is slightly larger then the expensive modern cameras today, however for my dad it was well beyond what it needed to have.
Features of the camera include 4x Optical Zoom, 8.3mp camera as well as the standard features such as Av output, dc input charging, expandable memory and huge selection of onboard features including video recording. As with most cameras, the onboard memory is quite small, so an expandable SD card is highly recommended. With my purchase i managed to get a free 1gb SD card, aswell as a carry case.
Don't worry about megal pixels, as no one tends to want/need any more then 8.
The most important issue that i find with cameras is operation. From the very beginning of using this camera, i realised that it's pure simplicity and reasonably basic features for cameras would aid my dad's use of the camera. It took myself approximately 45minutes of use, along with a couple of minutes of finding what the odd buttons were, to teach my dad how to use the camera. Up to this very day, he still connects it to his tv to go through all his random photos.
In the end the FujiFilm FinePix A820 was best for my dad. In the end, shop for who will use it, not whats best out there.
Happy Shopping. and Merry Christmas.