What's the best camera out at hand for lower than $1.2k?
Answers: More questions than answers, I'm afraid: Do you currently own any lenses? If not, elder lens compatibility isn't much of an issue. Are you into serious photography, or just playing? If you';re serious, next spend less money on the body (Canon XTi or Nikon D40x) and more on the cup. Problem is, really serious glass resources serious money - Canon "L" lenses or Nikon "ED" lenses will cost more than most camera bodies, but give you outstanding results.
OTOH, if you are only looking for as complete a system as possible for the least money, and don't intend to expand, the Pentax or Olympus models might be your best bet. Don't rule out Sony any, though they are playing catch up right in a minute.
If I were simply starting I'd get a Canon XTi and a Tamron 18-250 zoom, which will cover newly about everything you want, and a good flash close to the Metz 58AF series. Then I'd start building my system lens by lens, covering extreme wide, long telephoto, and midrange next to better quality lenses.
The Pentax K10D offer a lot for for a time. Weather sealing, Shake Reduction, 22 bit color, 11 point af. Compares in good health against Nikon D80, Sony Alpha A100, Olympus E-510 and Rebel XTi all within same price range
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