After my first batch of photos I knew that the Canon S10 wouldn't disappoint in this area of the review. And it doesn't. Overall image quality is excellent, with very good detail and definition, good, bright colours and less CCD noise than competitive cameras.
Digicam aficionados will know that Canon have always broken the mould by using a CYGM colour filter on their CCD's... This produces different results than the traditional RGBG colour filter. Though the jury is out on the specific advantages or disadvantages of either technology.
One thing that was noticeable against a good quality digicam (on this page compared with the Nikon Coolpix 800) was the Canon's ability to define edges even when they're on the boundary of bright colours (something traditional digicams struggle with). The other noticeable is a complete lack of noise, even in dark areas. But hey, don't take my word for it, check out the comparison below.
Compared to the Nikon Coolpix 800
General observations: The S10 shows better clarity, is less affected by colour boundaries and shows little or NO noise, this is especially noticeable on the image Crop II which is a crop of the reflection of the Martini bottle on the Martell bottle, the Coolpix 800 shows noticeable "shadow noise" which is to be expected of any digicam in such low light, the amazing thing is the S10's ability to not only deal with the low light but also pull more detail out of the shadow.
One slight oddity which can be seen in Crop III and this again is probably a side-effect of Canon's use of the CYGM colour filter is the colour artifacting around the small leaf emblem in red against the brown background. That said the S10 makes a better job of rendering the text without artifacts.
Overall the Canon wins this round, colours are more natural, better balanced, details are more defined and especially there is little or no noise to be found either on flat colour surfaces or in shadows.