beginner looking for upgrade advice, mainly outdoor photos

Thanks for the advice, and sorry for not using units! You guessed right with the inches.

I guess my next question is: is it possible to get into a dslr within my 500 budget? Or should i be looking more in the direction of one of the new "4/3" cameras, which in my understanding, are fairly compact, have decent manual capibilities, and have a larger sensor. I've had a friend point me towards the panasonic lumix g3. What is the opinion of that camera?