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Tis a good entry level camera, getting rare finding a nice low shutter count one these days! Its current replacement in the Nikon line is the D3000 which is about £340 with the 18-55 VR lens (new).
Bargains can often be found on the Nikon part of talkphotography:
http://www.talkphotography.co.uk/forums/forumdisplay.php?f=85
£500 is a good budget, you will be able to get better spec than D40 for that :)
D40 & 18-55 is a great way to get started as it gives you a chance too see what kind of focal lengths you will need. If possible try get the 18-55 VR lens, you can actually get some pretty sharp shots from it, its a very good entry level lens.
Or is possible, get the 18-55 VR and 55-200 VR...
Better sensor as D40 still had CCD sensor (D5000 has the same one as the D90), much better and quicker AF system, much better low light performance, movie mode (if thats your thing), more focus points, atriculated screen, much higher ISO range. CMOS vs CCD sensor.
Thats all I can think of!
Baby Desire but with a not so good screen and slower processor. Looks a bit squashed TBH but runs ok. Not as quick as its bigger brother. I'm using the HD Mini (which has a processor inbetween the Desire and Wildfire) which I am finding rather smart, yes it runs windows, but with HTC sense over...
My misses got her's today, and a gear 4 case which does not help servixce issues at all, its been from 1 bar to 4 bars for most of the evening. Bit of a bummer TBH as it looks so nice!