Just bought both of these because I was interested in having a camera that could do long zoom and that would stabilize the image. Tried both and decided on the Sony. Not sure if I got a bad sample or what, but the Canon images seemed hazy. However, it is a very nice handling camera with a lot of options. I really love my Sony DSC-H1. It handles so nicely and I got accustomed to the control layout very quickly. Manual options for aperture and shutter speed allow you to get PERFECT images. Most of my shots are razor sharp with the exception of non-flash indoor photos. However the image stabiliztion feature really keeps blur to a minimum. LOVE IT! The camera focuses very quickly both indoors and outdoors and there is almost no shutter lag. Flash is very good as well and has a longer range than the Canon's. Love that it comes with 2 NMH batteries and the charger is included in the cost of the camera! So easy to pack spares and if they die, you can always use alkalines in a pinch. The camera's macro mode produces STUNNING results - much clearer and sharper than I was able to achieve with the Canon S2IS. Here are some of the negatives I have discovered about the Sony. Indoor images taken without flash are a bit more orange than I'd like (even after white balance correction) and white balance correction is not available in Auto mode. You cannot zoom during movie mode (which you CAN do with the Canon S2IS). I'm not too concerned about that since I would not be needing this feature. I already have a Sony TRV-70 for video. The Sony also is lacking some of the easy "scene options" that the Canon has (such as snow, foliage, etc.) but since image quality is more important that fun options, I stuck with the Sony.
To be honest, with these ultra zoom cameras selling at $500 or less you just can't expect perfection. Trade offs are inevitable. If money is an issue for you, here are alternatives to consider.
I tested my friend's Canon S50 a while ago and I think its images were better than either of these zoom cameras. The newest of these is the S70. Advantage of this model is that it has a wider range (28mm equivalent). However its low light performance is not supposed to be as good. Also If you don't need long zoom or don't want to pay for the image stabilization another nice option that is less expensive than the Power Shot Pro is the Canon G6. It takes great pictures!
Good luck!
Part II 7-25-05
Having had a few more days to experiment with my new DSC-H1, I have found that there is a custom white balance setting that works much better than the presets for indoor non-flash shooting. It is not accessible in Auto mode, but that's to be expected.
Indoor pictures taken with this custom white balance setting do not appear "orange" in any way! I'm very relieved that I found this option!