A few months ago I mulled over the same choice. I got the Nikon D40 because of lens/body pricing and concerns over quality of the Canon kit lens and body ergonomics.
Overall, I like Canon colors and quality--I own a few of their compacts--but I'm not fond of their DSLR business practices. It seems to me that they over-charge for bodies, lenses and accessories. They don't even include a hood or pouch with even their $1000+ lenses, for example, and then want $40 for the piece of plastic that all other brands include in the box.
Also, I got the D40 + its good kit lens for less than the price of the Canon 400D body alone (not to mention that the Canon kit lens has a pretty dismal reputation). Finally, the Canon is just not as solid feeling or easy to hold as the Nikon. I'm sure the Canon takes good photos, but the above issues pushed me to get the D40.
The D40 is performing well. I mostly use it with the nice, nice 70-300mm VR, and sometimes with the Sigma 10-20mm. I could use auto-bracketing sometimes, but not often. Lens selection is no problem, since there are plenty of internally driven units available. What I wish it had, though, is the built-in, off-camera wireless flash commander that the D80 has.
I've no religion where cameras are concerned, so I'll probably replace the D40 with a more advanced model (Canon, Nikon..hell, even Sony if it's good) when some new models are released later this summer.