The Rebel XSi could be looked at as both a "baby brother" to the EOS 40D and the new EOS 50D as well as an upgrade of the Rebel XTi. It has the basic size and shape of the XTi with the same shutter speed range, the same flash sync speed and the same ISO range, but it has a new, higher pixel count sensor, Live View, Highlight Tone Priority, High ISO Noise reduction, Spot metering, a 14-bit A/D converter and viewfinder ISO display first found on the EOS 40D.
The image quality is surprisingly close to that the the EOS 40D and EOS 50D, but the cost is significantly lower. Of course it has fewer features too, such as a smaller ISO range, no rear Quick Control Dial, a slower continuous drive rate, a smaller buffer etc. I think the EOS 40D and EOS 50D are better cameras, but there's no denying that in terms of performance per dollar, the Digital Rebel XSi may be the best bang for the buck for someone who just wants a camera that gives high quality images under most shooting conditions. The Digital Rebel XSi is even better value when bought as part of a kit with the EF-S 18-55/3.5-5.6IS lens. You pay under $80 extra for the lens, which is a reasonably good performer (especially stopped down), with an excellent stabilization system which makes getting sharp images when doing hand held shooting in low light much easier.
The Digital Rebel XSi is available as a kit with the new Canon EF-S 18-55mm f/3.5-5.6 IS, $170. This lens covers the same angle of view that a 29-88mm zoom would on a full frame camera, so it's useful for many types of photography including landscapes, group shots and portraits. The Image Stabilized (IS) system is a new low-cost version of Canon's traditional IS, but the performance is good and it can add up to three stops of stability, making handholding the lens in low light easier, despite the relatively slow maximum aperture.
To complement the EF-S 18-55/3.5-5.6IS Canon has a new Canon EF-S 55-250mm f/4.0-5.6 IS, $255, which is good for situations like sports and wildlife photography where a longer focal length is needed. It gives an angle of view equivalent to an 88-400mm lens on a full frame 35mm camera. Like the EF-S 18-55IS, the EF-S 55-250IS uses a new, lower cost IS system, but again it seems pretty effective adding up to three stops of stability. Zoomed out to 250mm, IS gives you a good chance of a sharp image while handholding the camera at shutter speeds as low as 1/60s.
For those who hate switching lenses, the new Canon EF-S 18-200/3.5-5.6IS would cover many photographers needs in a single lens.