Here's a rough simulation of what it might be like if a 1.6x-crop DSLR had the pixel spacing of the Panasonic FZ50 (and the same electronics):
http://www.pbase.com/jps_photo/image/74020772/original
Now, I understand the Canon 10D has a fairly strong AA filter (takes almost 3 pixel lengths to go from 90% white to 10% black with an optically sharp edge), but this is the closest I can simulate; my largest-pixel-pitch DSLR with a sharp lens (Tamron 90mm Macro), vs my tiny-pixel-pitch FZ50.
I'd rather have the images from the tiny pixels.
Pixelation is a kind of "noise", IMO, and it actually exaggerates the noise that exists at the pixel level.
Obviously, not every lens made for the 35mm format or for APS DSLRs have the resolution to benefit from the smaller pixels, but many do.
