I was undecided about the Canon 870 (I don't know if your sd780 in the title is a typo) and the Lumix tz5 last summer -- ended up buying the canon. It takes great pictures but I do get the orbes some people mention in digital camera forums (like dpreview.com).
Anyways, I now regret my choice.
The lumix offers better quality (HD) video and more importantly, much more optical zoom. Those are features that I have missed in vacations I have taken since. It also seems that there are more manual functions in the lumix. But, it is a bulkier camera and some people might prefer the portability of the canon.
They are both good cameras, Canon has more recognition here in the US so people might be more prone to buying that brand. But the Lumix is an excellent camera and I might even trade my canon for the new lumix (tz7).
I do recommend the underwater housing -- it's a bit costly but so worth it! Protects your camera from rain, snow, ocean and the underwater pics and videos you can take are a lot of fun!
gook luck!