I have read reviews on the Nikon D40. They contains phrases like "It let take great photos without the burden of messing around confusing parameters" or "This parameter is hidden deep in the menu so it is hard to get to, but it does not matter because those people who buy this camera would not know what it is any way". The point is, this camera is aimed at the point & shoot market (well, Nikon cannot compete with Canon at the high end, so it is trying the low end).
Actually, the low end market is the most important. That is why all the newer companies jumping in target that area. The XT was Canon's bigger seller. Why? Because it brought in a new generation from the point and shoot.
the d40 is not a direct competitor to the rebel, it is for people that want inter changeable lenses on a budget. the d50/d70s and d80 are all competitors to the rebel, and offer many things that are better, and some thigns that aren't
by price
D80
400D
D40
...

