Totally adequate and in some areas a better choice than an SLR. Range is enough to handle most things out of the box.
Ive managed to do the background out of focus on my Panasonic FZ20 but as there are other people on here who own the camera I will leave it up to them to say if its truly capable in this area.
Where these cameras do suffer is low light sporting events.
I have (or is that had since the other half prefers it to her Kodak P&S) Panasonic Fz30 that has only a few things different to the Fz20, Fz30 is 8MP and has a manual focus ring, where as the Fz20 is 5MP and the manual focus is in a menu setting IIRC.
she loves the cam and has gone from "me see, me shoot always full auto" to being able to selecting the aperture and shutter speed on manual to get DOF and a balanced sky & foreground in some quite crappy light, all on a Fz cam in about 4 months
if you can get a Fz20/30/50 or Fz3/5 for that price range I dont think you will be un happy.
the below shots show some DOF taken with a fz cam