I keep the digital zoom capability turned on in my S2, because there is a clear indication -- a couple, actually -- when you've reached the end of the optical zoom and enter the digital range. And in truth, I don't fear using the digital zoom when I feel the need... it's really quite good compared to older/other digizooms. I won't swear it's as good as enlarging on the PC, and with the 12x optical zoom it's often not even needed... but I like to have the option available all the time. Time/subject permitting, I'll try to get several shots at various zooms, including digital, and then choose afterwards which to keep.
Oh yeah -- camcorder stills are often sub-par quality because the video doesn't have nearly the megapixels of a decent still camera. I guess 640 x 480 or thereabouts is the norm. The S2, by contrast, will shoot full-res stills while recording video at 640 x 480. Video performance on it is pretty decent for a still camera, and you can use the zoom lens as well.