A tripod solves camera motion, but you need to have the tripod with you..
Image stabilization helps when the light is low and the subject is not moving; a town square as the sunsets.
But if there are people in the town square moving around, they'll be blurred..
Both are great cams. Go to the store and feel 'em up. Heft them, lift them to your eye, lovingly caress...ok you get my drift. If you're just starting out, excellent deals are to be had right now on the Olympus E-330, which is the most versatile bang-for-buck cam on the market now. Pentax users may object now... .
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I have the e510 and really like it. I also think the IS contributes to me getting shots that I would normally screw up..
One other observation re: the Rebel: When I was looking at new cameras, I couldn't get my fingers to work the verticle wheel on the Canon Rebel and 30D. It was just very awkward. I much prefered the horizontal wheels like on the e510 and the Nikon D40x. Now, I'm taking a photo class, and one of the other students had a Rebel and was complaining that her 'fingers were all twisted' trying to work the controls. Just something to think about and confirm that you're comfortable with before your purchase..
In the example given people will be blurred whether camera shake is reduced by IS or by tripod..
If I were making the choices presented I would opt for the Oly because it's in-body stabilization thereby applying IS to all lenses vs. re-buying IS with each lens purchased (if the option is available.).
IS is generally worth about 2 stops on stationary subects when hand-holding the camera. That can 2 stop slower minimum shutter speed or 2 stops lower ISO to reduce noise or two stops smaller aperture increasing DOF. Whether you actually need this is going to depend on what conditions you typically shoot but your more likely to need one of these factors when shooting with long telephotos but thats not exclusive to telephotos..
I faced this same decision a couple of months ago. The main thing I was looking for was compactness - I travel too much (!) and wanted a camera that could go along. Both of these fit the bill. I thought that Oly's liveview would be nice, but that didn't factor into my decision. The IS and the kit lenses tipped the balance. What others said here about the in-body IS is right on target; it's a great feature but you have to understand it's limitations..
The final kicker for me were the kit lenses with Oly (very high quality) versus Canon (lousy - I knew I'd have to shell out another few hundred bucks just to get the camera to work properly)..
Now, 2+ months, 2500+ photos, and 2 readings of the manual later, I can truly say that I LOVE the E-510..
In the end, though, no camera is perfect. It's not the camera but the picture that matters, and they can both take outstanding photos.Stefan..
I'll take your invitation to object..
Why not consider the K10D? It is essentially the same specs for about the same price. There are also many great old K-mount lenses to be had for great deals. Not trying to degrade your choices, just curious...