Auto-ISO lets you shoot in low light without a flash in the "P" mode of the camera without thinking. It allows you to get the must stable shot possible with the availible light. And believe me, stable images are *far* more important than worying about the noise you get off the sensor. Especially considering that the sensor on the D40 is only 6MP which means that each individual pixel is bigger, and hence collects more photons, making it more sensitive anyway.
I have my D90 configured such that the camera will reduce the shutter speed first, down to 1/30th of a second. This is the point at which (I personally find) that I start taking bad shots. Especially without a VR lens. At this point the camera will start increasing the ISO to compensate for lack of availible light. Once the ISO hits a preset limit (1600 in my case) the camera gives up (again) and starts reducing the shutter speed. From this point there is nothing else the camera can do but decrease shutter speed.
If you have VR and a *very* steady hand and you hold your breath and you have time to compose your shot properly and...... Then you can reduce the limit of 1/30th lower. You will have to experiment as to what works for you.
There is one large caveat that you have to be aware of however. The activation of Auto-ISO is independent of *any* other setting in the camera. If you switch to "M", or even "A" or "S" modes, the camera will still Auto-ISO. If you have gone to "M" then you should be exposing the image yourself and hence you want to set the ISO yourself. Remember to switch it off! My D90 has a cool feature where if I plug a flash in it says "ah, if you're using a flash then you don't want Auto-ISO do you!". Very clever, but your D40 doesn't have it!
That's (IMHO) the biggest difference between the high end DSLR's these days and the low end. A low end DSLR will give you a fantastic shot if you set it up perfectly yourself, trial and error, and you get really good at using it. Even then it may take you a few attempts to get it right. A mid range DSLR will get it right *most* of the time without you messing with it much. A high end DSLR is perfect for someone like a photojournalist. It will give you a good shot autmatically *every* time, bar a few extreme circumstances. As always it depends on what *you* want to do with it. If you just want to learn and/or mess around then the D40 is a great start
Chris