Been a point-n-shooter for years, want to move to next level... needs advice!

I have had probably 4 different point-and-shoot cameras from various manufacturers over the years (Canon, Sony, Nikon) and I am looking to get some better looking shots. I have two small children and am really wanting something to capture great memories in higher quality than I have been using in the past.

Ideally, I'd want something that has some manual settings , but can also shoot great shots in auto mode for when I need to use it in the moment when the kids are doing something. In my research so far, my thinking is to go with a compact system camera or micro-four-thirds camera (whatever you might call it), but may be open to a DSLR as well.

Currently I am looking at the NEX-5N, which it looks like I can get for about $450 on ebay. From all the reviews I have read, it looks like it takes great shots and is pretty much what I'm looking for. Anyone own this camera that can vouch for it?

Any suggestions for me on what to get? I'd love to stay close to that $500 or $600 price range at the most, and size is not a huge issue as long as it takes great shots.

Thanks! Excited to see what feedback I get from "The Lens" experts :).