That is 100% incorrect. The 40D's LCD is an extremely high resolution display, the issue comes with Canon's review algorithm. It shows a much lower resolution copy of the image just captured, thus resulting in the discrepancy between sharp or out of focus. The 50D is said to have an improved algorithm.
To prove my point, take a 40D and put it in Live View. This shows just how nice the LCD is. You can pinpoint your focus on it, no problem. Take the picture, and then see the previewed image. Is it sharp? Well you know it is because you just saw that it was perfectly in focus, but the preview image is making you scratch your head. That's the result of the algorithm, not the LCD.
If I were on a budget of $1000, I'd take a 40D or even a Canon XSi (what I'm using now until the 50D or 5D MKII come out). The 40D is dropping in price now that the 50D has been announced, and it's a fabulous camera. And Nikon can't even compare (at this moment) to the lenses available from Canon and the much superior L glass is always a beautiful thing to use.
I'm not anti-Nikon in any way, but I've always felt Canon has offered better lenses and better IQ from nearly all of their DSLR bodies. The XSi is astounding in IQ for a $600 camera.
My 2 Cents.