I'm not going to invest in other lenses, I use the 14-42mm kit lens 90% of the time and I see the E-P1/14-42 combo as my compact, take anywhere kit. The JPEG image quality and the default colours of this combo are outstanding, the kit lens is a very decent and sharp lens.
Buying other Micro 4/3 AF lenses is useless for me, because I lose the compactness and might as well take my K-x.
To me, your missing out on the essence of what mFT is all about: small bodies
and small lenses. You can make a DSLR body as small as you want, but won't get around their lens size which reflects their registry distance.
The Four-Thirds website's has a simulation feature that's interactive, a lot of fun as well as informative: :
http://www.four-thirds.org/en/special/matching.html
Take a look at the E-PL2 with Panasonic's highly regarded 20mm f1.7 prime (40mm at 35mm equiv.), a great street photography set-up.
Same with the Olympus 9-18mm (18-36mm at 35mm equiv.), which tests as well as my full-size version yet is the same size as your mFT 14-42mm.
The Olympus 40-150mm (28-300mm at 35mm equiv.) zoom, while not tiny is certainly much smaller and lighter than equivalent non-Olympus DSLR zooms of its range, and a bargain given its performance.
As for the E-P1, I'm glad you bought this beautiful camera for a bargain price. I looked long and hard at it when introduced at an MSRP of $799 and couldn't justify it, but now it's quite a deal.
I'm leaning towards the E-PL2 given its improved featureset: faster AF kit zoom, 3" high-res LCD, pop-up flash, ability to use the VF-2 EVF. At $550 for the kit, it's a very good deal. Regarding the OP's comment on IQ, haven't heard this before and wonder if its when shooting in low light (not an E-PL2 strong point, though not awful either).
And for the OP's question, I'd wait a bit for the K-r's price to fall more, same camera as the K-x but with 3" hi-res LCD and visual confirmation of focusing. I tend to keep my cameras, so I'll spend a bit more to get features I'll enjoy over the years.
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Sailin' Steve