The Nokia N8 has the best camera phone. I don't believe the phone will kill the P&S market any more than I believe the tablet will kill the PC market. At best, the phone is the camera of last resort since it's almost always on you, but many people still don't use smart phones or prefer a more capable P&S camera.
Wasn't aware of the Nokia N8's camera. Damned nice. Wouldn't have noticed it because I haven't owned a Symbian phone since the N95.
Not saying that camera phones are going to completely kill the P&S market but it's going to put a major hurt on them. Enough to potentially turn it into a niche market where the compact point & shoot phones are pretty much dead and only the higher end P&S are left.
Smartphones are still in the minority, but as we go further and further forward, smartphones are going to be the norm rather than the exception. Think of it this way, there are an increasing amount of Android phones out now that occupy the $50-100 range on contract. The better cameras (roughly on par with the Samsung and the iPhone) on phones are going to trickle down and get cheaper and cheaper.
I think it's also important to remember that to the average consumer, the picture quality is "good enough" even though more critical eyes such as yours may not find it so. Most consumers probably won't print a picture larger than 4x6 and they are blind to the subtle details you might instantly pick out.
I had a cousin in law who had an early digital camera that took sub-megapixel pictures about 10 years ago and was absolutely horrid IMHO. That was the camera he used to take pictures of his kids. I kept telling him he was better off with a 35mm film camera. The pictures would come out sharper and with more detail. His response was that he was printing it on a small prints anyways, the details don't matter. Sad but true and I think it's indicative of general consumers towards cameras.