My little Canon Powershot S330 is a great camera and I'd had a lot of fun with it. But it had a number of limitations that were becoming frustrating.
These are the features I found I wanted, starting with with the most important:
I bought a lens adapter for my Powershot S330 (allowing 37mm lenses to be fitted) and wide-angle, closeup, and telephoto addon lenses. These sort of work, but not really satisfyingly. They blow out the weight and bulk of my kit and are difficult to use, with the adapter needed as well as the lens.
Given the requirements, another small digicam was out. So that left two options: a "prosumer" camera such as the Canon Pro 1, Olympus 8080, Konica-Minolta A200, etc. or a digital SLR.
Lenses: A DSLR with interchangeable lenses offers vastly greater flexibility. The prosumers have faster "all in one" lenses; the tradeoff is in sensor size and high ISO performance. (It is possible to get add-on lens adapters for the digicams, but they are of lower quality and negate the size/weight advantage.)
Macro: The smaller sensors (shorter focal lengths) of the digicams help provide more depth-of-field and an LCD, especially if it swivels or tilts, is better for framing shots. But SLR macro lenses offer greater working distance.
Viewfinder: I hadn't considered this, but when I tried a Canon EOS 300D and a S1 IS together, it became clear that digicam electronic viewfinders or LCDs aren't nearly as immediate as SLR optical viewfinders. LCDs may be better for framing and checking exposure and white balance before the shot, but they're much worse for checking focus.
The clear drawbacks of a DSLR were the extra size, weight and cost - all at least 50% more for a DSLR with a basic zoom lens than for a prosumer digicam. [Note: this is no longer true. Basic DSLR kits can now be found cheaper than high-end digicams.]