Thanks for your advice on which camera to get. Our IXY served us well for two years but pictures started to be come very blurry and yellowish.
Initially thought about getting another compact camera but wanted to improve my photography skills so decided to get a high end compact camera despite being bigger in size.
Unlike a standard compact camera, the high end versions (you can see some here) enable you to control the aperture and exposure too just like a digital SLR and the picture quality is far superior due to the higher quality/larger lens.
More about the LX3's Leica lens here.
The LC-1 self retaining lens cap is as the name suggests designed for the Ricoh cameras but it fits on the LX3 without any modification - you just need to force it on a bit with your palm.
If you use the zoom mode, the flaps get in the way as the lens retracts but you can stick something under the flaps to avoid this.
LX3 with closed LC-1.
Another thing that I forgot to mention is that one can find many accessories for high end compact cameras which you cant get for a standard compact camera.
This page lists some of the extra lenses and other bits n bobs available for the Lumix LX3.
The LX3 has a F2.0-F2.8 24-60mm (35mm equivalent) Leica DC Vario-Summicron lens. Images are captured on a 1/1.63-inch CCD sensor sporting 10.1 million effective pixels. Full specs in English at Dpreview.