Hiya,
@Eero:
To my understanding Megapixel = the image size of the shot taken, so at 1600x1200x32bpp that would equal a 7.5 Megapxel camera. I have an old one that does a 640x480 but says it is only a 1.3 megapixel camera having only 8 bit Analog to Digital Converters. So the 'megapixel' size varies as a function of the Analog to Digital Conversion.
Sure there is a physical limit to 'blowing up' images, but my reasoning is that it is better to have as much information as possible in the 'capture' stage, whether it is for personal photography or something larger. Film grain sizes go down further than CCD's can currently handle. I'm sure in the future they'll catch up and then I'll change my tune.
@Candy:
The quality is totally dependant on the size of the CCD.
Take a CCD of 100x100 (A really bad camera!). Using a 2x digital zoom all of the image you see is based on light coming in on a 50x50 square. 4x = 25x25 square. As a result, there is a huge amount of interpolation. Going to a 7 megapixel camera as mentioned above, at 52x digital zoom, your photo is going to be based on a 32x23 matrix. Yechh! I'd assume that when using a 52x digital zoom, your camera will extend itself to it's full optical zoom before even attempting to take a photo. So the quality still comes down to the optical zoom.
Where me work? Anywhere that will pay me

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Seriously. I started a business (Australian Central Processing Unit Pty Ltd) in the mid-90's when I was studying at technical college to earn those needed bits of paper . Some archival work with the State Library's geography department sparked an interest in how it's all done. That let to some work using the CSIRO's microBRIAN imaging system (image representation, geometry, statistics, transformation's etc).
I went back to college last year to finish an eletrical degree and have only just got the company up and running again fully in the last 3 months, partially due to the posts on this thread. Remember a few posts ago I made the comment that I had Hitachi's original designs around somewhere for a multi-channel hard disk and that I should get my soldering iron out? I contacted Hitachi and am currently set to patent some novel additions to their storage device with the intention of licensing the design out to whoever will pay me. (My soldering is a LOT better than my programming!) Of course it'll take a couple of years to actually sell anything

(non-disclosure, non-commercial use etc.etc.)