I'm afraid my advice may not be too popular on this one, especially to someone who already owns a D70, but I say get a P&S.
I've had a Canon A80 4MP point and shoot camera that has been great for kids and casual shots. With 4MP I can crop a little bit and still get excellent 8x10 prints from my Epson R320. We've even done kid activities where we've printed portraits of the kids larger than life to make puzzles or masks.
While the D50 has a 'Kid' program mode, I haven't really used it yet. The Canon however gave me all the normal things you would expect to find such as Apeture and Shutter control, exposure control, etc. The flash seemed to work much better than my previous Fuji digital camera, and seemed pretty good and reducing red eye in all but really dark situations.
The two things that made it really good, for me, for kid pictures:
1. I really could slip it into a decent-size pocket, or backpack without any concern.
2. The tilt and swivel LCD meant I could take eye-level pictures of the kids without kneeling or sitting on the ground (already done many times with the D50).
I'm actually going the opposite direction: I bought a D50 because I wanted something that would give me the flexibilities I enjoyed with my FM2 for over a decade. On a recent outing in the snow, I took my FM2 out for the first time in years and loved the pictures. But I realized I couldn't wait for the local photo lab to print the pics at $15 a roll, so I finally decided to get back into my old Photography hobby with a new digital camera (the D50). It saddens me to think of selling my FM2.
I've got some sample undoctored photos from the A80 here:
http://www.openroad.org/A80/