My Dad and his wife have owned a digital camera for a few years now. It's a 3 megapixel Kodak DC something-or-other. It has an awful looking software menu and a cracked lens (in spite of the crack, the picture quality remained the same before and after - weird!).
We visited them this summer and we had our spiffy new Nikon 7900 with us. It takes great pictures and I am digging the movie recorder as well (minor quibble on the movie recorder - it records .MOV Quicktime files that do not play nice on my Media Center PC - needs a converter app).
I suggested to my Dad that they get a new camera - for $359 you can double your resolution and get a ton more intelligence in your picture taking. A few weeks ago they took the plunge and just bought a 7900 as well.
One thing I forgot - that thing is tiny! The body is tiny. The lens is tiny, and those buttons are tiny. Not exactly the easiest camera to use if your eyesight is no longer 20/20.
I wonder if a camera manufacturer is considering this issue and this demographic. If you are recommending a camera for your folks you may want to keep this in mind.