Ok then, So I should worry less about the body and megapixels and look into better lenses. I will check into it a bit more (I still have a little time left) Thanks for the advice. ( as you can probably tell I know very little about cameras)
The amount you can spend on glass easily exceeds the amount you can spend on a body. Depending on the amount of "hobby" your wife wants, you could end up with lots of opportunity to show her how much you love her!
What you should look at first is the type of photography that interests her most, if it's just general "around town" stuff, or macros or events or buildings or nature or wildlife or whatever she feels will be her creative outlet. That way you get an idea of what lens focal lengths will work best and then you can look at your budget and decide if you can find an acceptable lens inside that budget.
With the Canon, I'd get the 50mm lens because it's only $100 and it's a very, very sharp lens and then I'd look at the type of photography and get a lens that "fits." Be aware though that even in the non-pro lens category some types of photography can run you into just past your budget on a single lens without the cost of the body (for instance, the Canon 100mm-400mm IS lens is a good wildlife/birding lens but it's more than your budget.) In that case, third party lenses like Sigma's may be a better choice for your budget- but it really depends on what she's going to shoot as to what lens and what price range are right.
If she's unsure, then by all means look at the kit lens as a "learn enough to know what I do or don't like" sort of thing. Even the worst Canon kit lens is very likely going to be a step up from a point and shoot.
People here tend to obsess over equipment, and they tend to recommend what they have personally- here are a few tips that if she's going to get into it, you might consider:
A *sturdy* tripod helps for all types of photography where it doesn't get in the way of getting the shot.
Fill flash makes more shots better than it hurts by a big margin, getting flash off the center of the lens axis onto a bracket stops red eye and an external flash used often (especially outdoors!) for people or macro shots will really help once she learns how to use it well. If you go with a kit lens, consider a flash and flash bracket though they'll add some bulk.
Photoshop or Photoshop Elements are very useful in digital photography. Scott Kelby's books are my personal favorites.
Lots of local camera stores offer seminars or small classes for their customers- that might offset the price difference from ordering online, and may help her gain confidence- otherwise many community colleges have courses- consider that a great way of maximizing the investment.
Pictures on the screen are cool, pictures printed out are even better. A good photo-quality printer and a few frames can help a budding photographer's confidence level a lot when they get some good shots.
Finally, the more photographers think about it, the more options they start throwing out- make a decision of when you've got enough information and go for it- don't wait for us to stop suggesting things!
