I'm trying to figure out what kind of camera I can get that takes decent pics in low light situations while being as small as possible.

My understanding is that digital SLRs have a larger light collecting surface and therefore do better in low light, but they're so big that you'd only bother to carry one around if you were intent on taking pictures whereas a pocket point and shoot can just always be there with you should you need it, photo op or not. Then again the pocket sized ones are usually awful in low light conditions. I'm hoping to find something that's somewhere in between.

Does a higher ISO value = better low light pics?

 

Canon S90 is probably the best small P&S out there today for low light shots. Up from there, you can get into the micro 4/3rds cameras but they're more expensive and a little larger.

 

Higher iso can equal better low light pictures, but a huge part of it is just having a bigger number than the competitor. I bought a s90 and it has the option to use 3200 in all modes and 6400 in the 6mp low light mode, but from my few weeks of experience I think I'll do anything I can not to use it over iso 1000 in, and maybe up to 1600 for black and white. I do think the noise reduction is actually better out of the camera than I used to get with my original digital rebel and noise ninja, but I think my Xti still beats it.
Another thing to take note of is how much light the lens lets in. The at the wide angle the s90's lens is at f2 and I think it will be quite useful with the usable iso.

The thing I find I really like about the camera is that having the aperture bound to the front ring and the shutter speed bound to the rear dial makes it feel like a real camera, but I think I will break the flash as it raises up right where I hold it with my left hand.

 

thanks for the tip about about the s90! I placed an order for one.