Small cameras are convenient. I just couldn't live without the option of switching lenses, etc. Of course, if you don't go the Digital SLR route, then you can probably save quite a bit of money.
We actually have 2 digital cameras - my Nikon D50, and a smaller Nikon point & shoot that my wife uses. She ALSO does not like the size of my camera. I think she has grown to appreicate the flexibility it brings, however.
I am SO looking forward to getting a nice macro lens for it.