I would agree that for casual use, a 5-7 megapixel camera should be just fine. Also note that you can go into the preferences of a 20 gigapixel monster and tell it to save the images in a smaller size. I've yet to meet a camera that wouldn't let you do that.

Another thing to think about is how well the camera fares in low-light conditions. I replaced my old camera entirely because it couldn't handle anything but direct sunlight without turning on the hated flash. Fuji makes some cameras that really shine in indoor/low-light conditions.