I have recommended before the Pentax Optio for a waterproof digital, but not just because of the waterproofness- because my girlfriend was taking amazing photos with her old-school Optio which is now obsolete. You can get the older ones pretty cheap now, and even the W8 is down to $175 due to the pending release of the W9 in April. Maybe that's out of your range. If so, as you said, you could try eBay for a used one, but be careful with waterproofs.

I know you said it doesn't have to be waterproof, but after buying a Lumix when we left Amy's Optio in a cab in Peru, I'm now saving to buy an Optio because I miss being able to take the camera on the water. By the way, the Panasonic Lumix cameras are amazing, and have Leica lenses- the best in the industry. They are probably out of your price range, but definately worth the money.

Just a note- be sure to get an optical zoom, not a digital zoom. Digital zooms basically just crop the photo in the camera- causing less pixels and less image quality. Optical zooms actually zoom using the lens, leaving the pixels alone so later you can blow it up bigger or crop it more with less pixelation. Also I would definately go for 6 megapixel or higher for best resolution and the ability to enlarge and crop with less pixelation. Today's pocket cameras are being offered in 12mp versions. The image quality is amazing.

Here's a shot Amy took with the Lumix. Amazing!