If you follow my blogs and forum posts, you know I've long been a fan of the Micro Four Thirds system. I'm a firm believer that for most photos or end uses we have reached a point where full frame cameras are an unnecessary expense (each to their own, of course!). I've been putting my Canon dSLR and micro four thirds bodies to the test over the last few months and they come out very close. There were a few things keeping me from fully committing, however. The Olympus E-M5, released in the last few months, has dealt with most of my hesitations. There are a few limitations (AF tracking being the main one), but it also brings with it a host of benefits as well.
How does IQ compare?
Side by side in controlled light there is frankly so little difference I could not tell images apart - especially if shot with the same lens (advantage Micro Four Thirds on that point!). Lenses are everything, and that is where micro four thirds can really shine. They seem to have covered off the common focal lengths with excellent prime lenses, that don't break the bank. Plus, unlike the APS-C systems the lenses are designed around the sensor size, so you have 'true' 28mm, 50mm, and 90mm equivalents. With an APS-C camera you really have to work to get those focal lengths. There isn't one prime lens other than the 60mm macro designed for APS-C Canada cameras. Canon just released the new pancake lens - a 40mm f/2.8, clearly made for full frame bodies. In APS-C it is an odd focal length of 64mm. If you want a true 28mm equivalent prime lens for Canon APS-C you are out of luck, zooms are your only option.
In low light, the larger sensor has the advantage, but in practice I don't use high ISO for stock - so it is only for personal shots that I lose out. The reality is that I don't need the ultimate in IQ for my personal shots as they are unlikely to be printed large enough to make a difference. Keep in mind that the sensor size difference between APS-C and Micro Four Thirds is something like 30% if you are shooting 4:3 aspect ratio (and 4:3 gives you a larger thumbnail on DT!).
I'm also very impressed with the highlight recovery of the E-M5 versus other Panasonic bodies I've used. An example is here on my personal blog: Highlight recovery in Lightroom.
A key aspect of the micro four thirds standard is the lack of a mirror, and as a consequence the viewfinder is electronic. On one hand that is too bad, since a good optical viewfinder is great to use. On the other hand, though, there are few compact sized dSLRs with good viewfinders. Full frame bodies have excellent viewfinders but are consequently even larger, and definitely more costly.
The benefits of the EVF are many. One is that you can shoot movies at eye level, not just on the rear LCD. Another is that the viewfinder can show you the scene live in black and white, at any aspect ratio, histogram overlay, with level guides, etc. May favorite feature is that the LCD and EVF experience is exactly the same. On my old Canon 7D it was a totally different mode of operation to switch to the rear screen. One can argue that newer dSLRs are getting tilt/swivel rear screens and even phase detect AF for video, but they still suffer from not being able to use those modes via the viewfinder - a problem in bright light or if you need the connection to your eye to steady the camera.
Another great feature, though not specific to micro four thirds (see Sony and Pentax), is that Olympus bodies have built in sensor based image stabilization. On the E-M5 it is particularly good, and works very well in video, too. Canon only makes three prime lenses (to my knowledge) that are stabilized, and all cost $800 or more. The Olympus IS works with my $170 28mm equivalent prime lens.
I feel that with this camera, micro four thirds has finally reached the level of being serious competition for APS-C dSLRs. It can't keep up with AF tracking, or telephoto lens selection, but for the lenses I use for stock and street/family shooting it is a great system. My main hesitation to using micro four thirds as my primary camera was for studio work - but the E-M5 has an optional grip that turns the camera into a unit that handles very well with a portrait grip and twin control dials. Plus, Olympus has in body wireless flash control - and these days I'm moving to LED lighting for product shots and the EVF allows you to preview your work very well... With any camera system there are compromises, and this system now has the right mix: missing things I don't use much, and adding things I do.