Originally Posted by JHow
The 3 most important differences are these:
10 MP sensor (vs 6 MP for the D40) Some people don't perceive this as an issue, but if you crop your photos, having those extra pixels help. Some will say that the difference is miniscule in many situations, and I would tend to agree unless you are cropping pictures. I don't see much difference in 8x10's that aren't cropped.
1/500 second flash synchronization (vs 1/200 second for the D40) Doesn't seem like much, but if you use off the camera flashes, it can make or break the shot.
100 ISO lowest sensitivity (vs 200 ISO for the D40) This may or may not matter for point and shoot, but it does make a difference if you are using long lenses, and/or in some light situations.