got the xti nov 2006 and the 40d dec 2007
made the upgrade and i don't regret it. keeping the xti as a backup for now.
here are the differences i noticed
40D is much punchier, it responds very fast to the user. The viewfinder blackout also seemed shorter
6.5 fps is really nice, but not essential if you're not shooting sports, etc
viewfinder: this was a HUGE, noticeable difference. The VF in the 40D is noticeably bigger and brighter, and also includes ISO, which i found very nice in practice. The AF points also light up brighter, and the text inside the VF is also brighter and larger. XTi's VF looks like tunnel vision in comparison.
Handling: the second wheel on the back of the body makes exposure compensation changes pretty easy. They weren't hard on the XTi, but settings changes seem a bit more intuitive and easy to reach on the 40D.
Larger LCD: this isn's that huge a deal for me. I think the resolution looked best on the XTi's 2.5" screen...on the 40D's 3" screen the pixelation is more noticeable.
Ergonomics: The 40D wins hands down, at least for me. I love its large, comfortable grip, especially with large lenses mounted. You should try it out before you buy it, because ergonomics is a pretty personal issue.
Build: the 40D also wins this, feeling very solid with its magnesium alloy build. The XTi feels a bit more toy-like with its plastic build. That said, I'm sure I could get on fine with the XTi, since I don't abuse my equipment or work in harsh environments. The 40D just feels more solid and rugged.
You can display shooting settings on the back LCD of the 40D, but I prefer to keep that LCD off unless reviewing the pics I took. The top LCD is good for displaying settings, and probably saves battery life. You can also set the ISO to H, which is equivalent to ISO3200. These shots are usable as long as you clean them up with some noise reduction, expose them properly, and size them down a bit.
Here is an ISO3200 shot I took with a little ACR noise reduction
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Biggest point of interest for me was the better ISO performance. I'd rate it at about one stop improvement (i.e. ISO 1600 on the 40D looks like ISO 800 on the XTi)
Live view is useful for me for its very quiet shutter. It is also nice for focus-critical situations...you can fine tune your focus using the large LCD screen and zooming in to 10x. I use live view for less than 1% of my shots though, so it isn't that useful to me.
RAWs are shot in 14 bit as opposed to the XTI's 12 bit RAWs...so this means larger files (I'd say average XTI RAW was 10mb for me, and average 40D RAW was 14mb). I wouldn't say the color difference is that noticeable.
Autofocus on the 40D seems noticeably better, especially in AI servo mode
The dial has 3 positions for custom settings. I don't use these, but I'm sure someone has as use for them.
My XTi's LCD had a little bit of a weird warm cast to its LCD. Not sure if anyone else noticed the difference in switching from 400D to 40D. Pictures seem warm on the LCD on the XTi, but turn out to be a bit cooler than displayed when viewed on the computer.
Exposure seems more accurate on the 40D. I noticed a bit of underexposure on my XTi, but less so on my 40D.
Other small nice things? Flash sync of 1/250 as opposed to 1/200, and included PC sync port on the side, which the XTi doesn't have. Dedicated AF on button. I switched up my style of shooting after getting the 40D...normally I'd have half press do autofocus and exposure, but now I have half press of the shutter lock exposure, and a press of the AF on button do autofocus. The rebel can be set up the same way, actually.
A "My menu" tab is included in the menu, allowing you to put your most used menu items in one place. Makes it easier than having to scroll through the various tabs to get to your most used things.
40D has true spot metering, while the XTi only has partial metering. Good for tricky lighting situations. A circle is drawn in the VF, delineating the boundary of the spot meter.
Another thing that the 40D has: the ability to change out focusing screens. You can add one that has a grid drawn on it, or you can get the precision matte one. I got the precision matte one recently, and it displays the actual DOF (instead of artificially increasing it, like the standard focusing screens do). This is useful for manual focusing fast prime lenses.
In use, was it worth the upgrade? Yes! I wish I had started out on a xxD body, but 20/20 hindsight, right?
Hope that helped