Danielson99 - I think you missed the point here.
The DMC-ZS3 (also known as the DMC-TZ7) is a pocket camera
103.3mm x 59.6mm x 32.8mm
206grams / 229grams with battery
and the DMC-FZ35/FZ38 is not a pocket camera.
118mm x 76mm x 89mm
367gramms (no batt)
I have taken the ZS3/TZ7 out to 2 birthday dinners @ restaurants in the last 2 weeks, and the camera fit in my jacket pocket or missuses handbag. Very unobtrusive size. The shots I took last week were the ones in demand at dinner last night.
Yes, the ZS3 / TZ7 is not certainly perfect, but the video is astoundingly good for something you can just pull out of your pocket and shoot.
Annnd, I fully expect the codec and low light performance will only get better for these pocket cams
. I also intend to buy a water housing to take it jetskiing, and will probably rig up a handlebar mount. The FZ35/FZ38 looks way to big for this purpose.
I may buy a CANON 7D soon for top-notch video performance. The ZS3 / TZ7 is intended to be a pocket cam for my missus.
I personally do not see the point of intermediate cameras such as the DMC-FZ35/FZ38 - to big for the pocket, and not in the video quality league of cameras like the 7D.