The D40 chassis evolved into a whole series of cameras D40 > D40x > D60 > D5000.

The first three are pointed at the entry-level market with some simplified features (three autofocussing points, only one knurled wheel to control aperture or diaphragm instead of a dedicated wheel for each). However this is still a sophisticated DSLR that will do everything you need.

The D5000 is new and is pointed slightly higher. It has 11 autofocus points and a video system.

I bought the D60 as my "small light cheap" DSLR. Other features I like are the effecient dust removal system and the latest-generation image processor which lets me go up to 3200 ISO with good image quality. It's also very very quiet.

Most of the time I fit a walk-around lens on the camera which makes it seem bigger (the 18-200 dwarfs the D60 but it still fits in my hands). When I want it to be really small and discreet - like in cities at night - I fit my 35mm f1.8 AF-S prime lens. This gives me available-light ability with a "normal" view lens which I find very useful

Note that in the process of making the D40/D40x/D60/D5000 smaller Nikon removed the focussing motor from the body. It you want autofocus you have to use lenses that are AF-S (focussing motor built-in)