I just went through this exact decision-making process, and went with the D40. D40 and D60 are very similar. Main difference is more megapixels in the D60, but this translates to a longer time storing the image in between shots.
There are many more differences between these two and the D90. There is a video mode, but it's a weird video in that it does not focus during the shooting, so if your subject moves, it's out of focus. This really limits your flexibility. There is also "Liveview", which lets you take pictures using the LCD screen, like on a point & shoot. I really miss using the LCD screen on the D40. However, even "Liveview" is not really live; because of technical issues with how SLR's take photos, the picture you see is delayed by a half-second or so. This is a real problem if you're taking pictures of, say, a baby. By the time the image comes on the LCD, the moment has passed, and you won't get the same shot when you press the shutter.
The D40 with kit lens is $410 at amazon.com right now, which was by far the best price I could find. I wound up going with a deal at Ritz Camera instead, where the D40 with 18-55 (kit) lens, Nikon 55-200VR lens, camera bag, and two DVD's was $599. The only disappointing thing was that apparently the 55-200 lenses are on backorder, so I still haven't received that lens. I also got an SB400 flash and a diffuser. Apart from the adjustment to using the viewfinder rather than the LCD, I'm very happy with the results thus far. (This is of course assuming that Ritz Camera ever sends me the 2nd lens.)
Dave