Well this is my corner of knowledge, but some already got ahead of me...
At this point, if you are looking for an SLR to be use as a point&shoot, the D40 is your best deal...
I got my D40 from Amazon.com for about $550 and the deal included the kit lens 18-55 and the 55-200 VR, fliters and camera bag. Everything I needed to go out shooting in the wild... I have no complains of this camera so far.
For the regular Joe, the D40/D60 are the same camera, for those who are image quality nuts, the D40 actually has the edge, and for those who like new features and functions, the D60 has a few new things added to it.
Now, when it comes to the Rebel XTi vs the Nikon here is what you have to consider:
1. If your family skin is fairly pale, then either will do just fine.
In my case, I have dark kids and their skin tone come out horrible with Canons due to the fact that Canon's are heavy handed with the Cyan bias. On the other hand, Dark people come out just find with Nikon because this brand then to be bias towards the Magenta side which make dark skin look better.
2. If you are a photo-shop guru who like to spend hours tweaking photos, the the Canon Rebel will serve you better, it produces more flat images that allows you to fine tune them to your own taste and feel. If you are a regular Joe who just want great punchy colors and sharp images out of the box, then the Nikon D40/60 is your camera.
Now, if you just want a disposable camera that is worth every penny when it comes to image quality, then the Canon A590 IS for $129 at Circuit City will serve your wife beautifully... Great little camera to carry around everywhere, and capable of producing excellent images, natures, objects and pale skin people. I do own it and love it althought I don't like the greenish tone it gives my kids skin...
Also, here is the main traditional difference between Canon vs Nikon in the SLR world... Camera Body vs Camera Lens...
Canon are know to produce and arsenal of different lens for all imaginable purpose, great variety and that is why the pro's prefers to invest in Canon because of all the available choices in lens.
Nikon on the other hands are know for the Camera Bodies, better built and more advance functions. With regard Nikon lens, they are just as good as Canon when it comes to built and image quality, but Nikon just doesn't produce as many different styles so a pro using a Nikon system will be more limited to the kind of tools he has available to him for the job at hand.
Now, how does this relates to you, unless you are a dedicated photographer, all you need is the kit lens 18-55mm, very seldom you will find yourself switching lens... So, your case the Canon advantage means nothing, but on the other hand, us American are know to have large size hands, and that is where the Nikon D40/D60 shows the edge, they are a lot more comfortable to hold.
When you just holding the camera for one or two shots, comfort is not an issue, but when you go out on vacation and need to walk 5 blocks taking pictures in Rome, then that is when you will feel the pain and wish you had a better grip camera like the Nikon.
Hope that helps...