The differences are as highlighted in Imaging resource

* Auto Focus in Live View by depressing the shutter release button halfway (Contrast-Detect autofocus)
* New grip on the front of the body for a more secure hold
* Face Detection Technology (Taking advantage of contrast-detect AF)
* Shadow Adjustment Technology for greater detail in the shadows
* Larger 2.7" HyperCrystal II LCD Display - Twice the contrast for better viewing in extreme lighting conditions, broader color gamut displays a greater range of color detail, wider view up to 176 degrees off center
* Perfect Shot Preview - Live exposure effects displayed in a thumbnail view on the LCD for easy selection/adjustment prior to capturing the image
* 10MP Live MOS sensor with improved dynamic range - more detailed images
* Improved Auto WB (white balance) performance with a new algorithm for more accurate color - Similar color reproduction to the Flagship E-3 model
* Increased sequence shooting speed up to 3.5fps
* Wireless flash capability with the FL-36R or FL-56R
I would say the LCD and the better dynamic range are worth the extra $70 on their own. I'd go for the E-420.