Coolpix 995 here (3.34mp), and I love it. The current version of the 900 series is the 4500, and it goes for about $500 if you know wher to look.
Nikon's coolpix 3500/3000/2500 will have something in your price range, but I think you're surrendering complete manual control or something.
It's not just about megapixels; optics are pretty important as is the quality of the CCD that actually takes the pictures; digital processing options are nice, but most of us can run photoshop.
You'll also be looking for a CF card which will run 50-100 bucks depending on size.
As for why you should spend the extra hundred or so bucks:
You'll get the camera for one reason, but new uses will just present themselves. I use mine
a lot. Sure, pet pictures (not that I have pets, bvut they're great models), travel pictures, weather pictures, photographs of beer trucks, photocopies (it's faster and cheaper than a photocopier

). I picked up a 12-Euro minipod and I do all kinds of scary low-light stuff.
Plus, as borg found out, turn off the beep, use the monitor, and it's much more discrete than holding an slr to your head.