
Like others have said, don't let the "Entry level" tag scare you away from this camera if you are looking for something that will produce stunning images. If you aren't getting great shots with this, it isn't the camera (the user image gallery speaks to that).
I've had the chance to use a range of digital cameras in the last few years, ranging from the pro-level stuff like a Canon 1Ds Mk ii to the real entry level SLR's like the Nikon D40 (which I will go ahead and say to avoid if you are looking for an SLR - its not a bad camera at all, but considering the fact that you don't have to spend THAT much more money to get a LOT more camera, it just isn't a real wise investment). I can say straight away that this camera performs beyond its price tag.
I needed an SLR that would be good enough to do portrait work, some outdoor sports shots, an occasional wedding but at the same time be something small and lightweight enough to conveniently take with me while hiking, traveling, etc., and not break the bank. This camera does all that and more.
Performance is great at low ISO's and the camera produces good shots even at 1600 (the noise reduction features both in camera and with the included raw editing software also help). Obviously it won't produce shots at ISO 1600 that are as good as shots on one of the professional grade cameras like the aforementioned 1D series, but its a HUGE step up from a point and shoot if that is all you have used. My own personal experience is that I usually never need to go above ISO 800 for the low light shooting I do, and the pics I get at that ISO are great without a distracting amount of digital noise.
The large LCD screen is a great step up from the smaller ones on previous rebels and menus are easy to navigate. The self-cleaning sensor function works like a charm, but you should still invest in a hurricane blower to in case dust does get on your sensor (an inevitable situation if you use the camera long enough and change lenses).
I highly recommend getting a Canon Speedlight external flash (I own the 430 EX II). The built in flash on the camera works fine, but you can do so much more with directional and reflected lighting, and the speedlight flashes give you this opportunity. If you get this camera, don't always rely on a flash for portraits. A steady hand, slightly slower shutter speed and wider aperture with slightly darker natural indoor lighting will produce some stunning portraits that really capture a mood instead of a shot where the flash has drowned out lots of the details.
Also, if you want a lens that is great for portraits with nice blurred background (bokeh), you can't beat the value of the f1.8 50mm prime here:
Canon - Lens - 50 mm - f/1.8 II - Canon EF
The 18-55 mm kit lens is a decent starter lens, but there is no doubt that better lenses will produce better pictures (but you will be spending some serious $$$). Still, if you are looking at your first SLR, this lens will get you lots and lots of great shots. I got the kit at Costco and it came with a Canon camera bag, the 18-55mm lens, and a 55-250 mm IS lens as well (all for $849). Again, both perform admirably for kit lenses.
One last thing I want to reiterate - Learn to use the SLR - don't just stick to auto mode and use it as a point and shoot camera. You will be missing out on nearly all of the benefits that really separate SLR's from the others. There is a learning curve, so don't be afraid to take a bunch of pictures while playing with your aperture, shutter, flash, iso, etc., to get a feel for how all work together to produce certain types of images.
HIGHLY RECOMMENDED.
EDIT: I have since returned my XSi - not for any reason to do with picture quality - but rather that the camera was just a bit too small for me to hold comfortably during extended shooting. If you have really large hands, consider trying this thing out in a store to make sure it is comfortable...I ended up upgrading to a Canon 50D. I still stand by the XSi as a fantastic piece of equipment (if you get the AF problem people have mentioned, just return the camera and get another one, don't let it scare you away from trying it.)
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Canon Digital Rebel XSi 12.2 MP Digital SLR Camera with EF-S 18-55mm f/3.5-5.6 IS Lens (Black).