If you want a camera that takes great pictures but doesn't fit in a pocket, you might as well move up to a digital SLR and take advantage of its flexibility: interchangeable lenses, a bigger sensor for lower noise at higher ISO speeds so you can shoot under dark conditions, and anti-shake technology that lets you shoot under almost total darkness, for those inside cathedral pictures. Below are my recommendations for cameras and lenses specially suited to travel photography. Today's cameras also do high definition video, a bonus.
Canon EOS 7D Digital SRL Camera Body - Pictures and Video
Canon
The latest Canon is the most expensive on the list, but it comes with some features that a travel photographer will appreciate. It's essentially a professional crop sensor camera (called APS-C) with full High Definition 1080p video capabilities, including a jack to use an external microphone. It also has some weather sealing, so you might have fewer worries about using it in a drizzle or when there's blowing dust. You can get it with a very good lens (see below), but if you can afford it I suggest you buy the body only and opt for the incredible lens below - the 17-55 mm f2.8 IS lens. It's what I've used for pictures on Europe Travel for the past couple of years.
Canon EOS 7D SLR Digital Camera Kit
Canon
The same camera as above with the kit lens: Canon EF 28-135mm IS USM Zoom Lens. The lens is "image stabilized" meaning that you can hand hold it at 2 or 3 shutter speeds slower than is usually necessary for a blur-free picture. Be aware that due to the 1.6x cropping factor, the kit lens is really equivalent to a 39mm lens. This is not wide enough for much of the shooting I do as a travel photographer. If you have relatively deep pockets, you'll want the 17-55mm lens below, which offers a 27mm equivalent view.
Canon EF-S 17-55mm f/2.8 IS USM Lens
Canon
I've been photographing professionally for over 30 years, and this offering from Canon is my favorite lens of all time. It's fast for a zoom, 2.8f throughout the zoom range, and the IS is spectacular. Pictures taken in an almost completely dark church at 1/6 of a second hand held are sharp as a tack. It focuses reasonably close. It's expensive, but worth it if you value your work and need the flexibility the lens offers in terms of getting shot under horrible light conditions. You'll also want the shade, which is unfortunately offered as an expensive accessory-- especially considering that it's just a plastic shade.
Olympus PEN E-P1 - if size is an issue
The latest Olympus Micro Four Thirds camera is for folks who still don't want to carry around the bulk of a full size DSLR camera. It still has interchangeable lenses and the advantage to the four thirds camera design is that the lenses can come from any manufacture who signs up and produces the four thirds mount. Lenses are smaller than normal DSLR lenses as well.Nikon D300 SLR Digital Camera Body Only - Rugged and Fast
Nikon's D300 is a top rated camera with crop (DX) sensor. 12.3 megapixels, sensor cleaning, 51 point autofocus, 6 frames per second shooting, and more. Magnesium-alloy body with moisture protection.AF-S DX Zoom-Nikkor 17-55mm f/2.8G IF-ED Zoom Lens
This is the lens, perfect for travel, that Nikon fans rave about. It's the equivalent of the Canon zoom above in features and zoom range, perfect to use on the N300 instead of the slower kit lens.Nikon D90 - Video Capture
With many of the same features as the D300 above with the addition of video capture (D-Movie, selectable from 320 x 216 pixels, 640 x 424 pixels or 1,280 x 720 pixels in AVI format), the D90 is a good value in a travel camera. 12.3 effective megapixels and Integrated Dust Reduction System, ISO 200 to 3200 for low light shooting without flash like you might want to do in cathedrals or museums.