Recently we took a vacation/work trip to Hawaii. How could that be work you ask. The Missus needed to get photos of things that can only be found in a tropical place like Hawaii. Shucks! Turns out Hawaii was less expensive than other tropical places so that's good on the bottom line. But we also needed an underwater camera. Housings for an SLR while awesome are expensive and overkill so we picked up a point and shoot underwater camera and I am super happy with it.
The choices were between the Panasonic TS4 and the Nikon AW110. At the time of writing this the Panasonic was $150 more than the Nikon so we went with the Nikon. I've used the Panasonic TS3 before and it's great but the Nikon holds its own at a much lower price. However, as of writing this they are virtually the same price on Amazon since it appears the price of the Panasonic TS5 has come way down in price from it's predecessor.
One really huge advantage to these cameras is there is no protruding lens. On a normal point and shoot when it is turned on a little motor will push the lens out. If you bump it every so lightly it will break off. I've had this happen more times than I can count. Be more careful you say. Well, that's true, but it's happened by accident every single time and with this camera you don't have to worry about it. All optical zoom is internal so no external moving parts!
In good light the pictures are very good. An SLR will always outperform it but in good light it's real close. Convenience is key. In dark rooms it leaves much to be desired but that's the same with any point and shoot. The speed at which the shutter release is pressed and the picture is taken is also very impressive and surpasses many regular point and shoots in the same price range or even the Canon G series. I had a Canon G but I sold it because I preferred the Nikon AW110.
My only complaint is the battery life. Buy a second battery.
Also when going in a pool with chlorine or in the ocean with salt water, before opening the doors to the camera to replace the SD card or the battery, fill a small bowl with fresh clean water and soak the camera for 30 minutes. This will keep the seals clean. Also you will want to oil the seals once in a while so they don't become brittle.
Update: Turns out we like it so much it's with us almost all the time over our SLR!
Nikon now has the AW120. It looks even better.