I'm not an expert by any means, but I had to go through this a few years ago...
Don't get a waterproof camera. Like Stewart said, they're barely suitable for snorkelling.
The most important thing in a camera is the lens. Since this is less amenable to marketing speak than megapixels, this point is often missed, like speakers for a stereo (and likewise it's where the manufacturers will cheap out). Therefore it's better to go with a vendor that has experience designing and building these, so the big names in photography: Canon, Nikon, Pentax, Fuji... Sony and Panasonic I understand are good too.
The second most important thing is the sensor, and more specifically the sensor
physical size. Just about every camera on the market now has enough pixels, and there's little difference between 8 and 12 MP anyway. If you check the really expensive cameras bodies out there, they're all in this range. A Canon EOS 1D mk 2 (worth 3 grand) has 10.7. The difference between this one and a normal compact camera is that the former's sensor area is 17 times greater. All else being equal, this means it will capture that much more light in the same amount of time. Which means it will be able to reduce the image capture time (less blur), or shoot better in lower light conditions (less noise), or without flash. Still, most compact cameras will have about the same sensor area (~ 30 mm
2).
A most helpful site is
www.dpreview.com. They got really in depth reviews of the available hardware, including comparisons, and they're not shy of saying "don't buy this". Of course since they're more technically orientated, their reviews of compacts will tend to say things like "as good as you can get from a compact" and such. You translate this to "this thing just rocks"
Incidentally, they have a review of waterproof cameras (the ones you shouldn't get) here:
http://www.dpreview.com/reviews/Q209waterproofgroup/.
As for the housing, the manufacturer's own will usually take you to 40-45m. Ikelite makes some that go down to 60m, but they're more bulky. Beyond that it gets real pricey real quick.
Personally, I use a Fuji F31fd with a Fuji housing (and no strobe), which I'm very happy with. See attached samples (not fixed in any way, just reduced in size). The F31 was for a long time the best compact performer by far in low light due to the specific sensor Fuji uses in their F line (F100, F200). If I was to get one now I'd get an F200 (it's got a slightly bigger sensor than usual, too).
www.diverswarehouse.co.uk has it with housing for 330 sterling; they also have to F100 (previous model) for 280. A tad over your budget, unfortunately. I would avoid rebadgers (Sea and Sea, Intova, ...). They sell older models from known brands, or unknown models from unknown brands, but you never really know which, and since no one is testing them, it's difficult to know in advance what they're worth.
Hope this helps,
Matthieu
