How much better are DSLRs compared to Digital Compacts?

My friend bought a pretty decent point and shoot with 14 megapixels and I have a second hand Nikon D40x with 12 megapixels. He keeps saying his is better quality because the results look similar. I see where he is coming from and would I of been better off getting a camera that was much cheaper? What is your opinion on DSLR Vs. Digital Compact? I will always stay with DSLRs anyway:3

Resolution figures hardly makes a difference in real terms of prints. You can zoom in and look at every detail in the pic to compare on the computer, but no one really cares. If you're taking great shots, what does it really matter? Here's a quick list of what the characteristics are for both camera types.

DSLRs:
-have lens options. A vast array of lenses for the D40x will give better results of quality in direct correlation with the quality of the lens itself. If you're just using the normal kit zoom lens, you have no idea what you're missing out on.

-Another advantage to DSLRs is the advanced options and accessories it has over point and shoots. Point and shoot cameras may have similar options but are limited in accessories that could actually make a real difference in your pictures.

-Build quality: The Nikon D40x is a few years old now and is not going away. Plenty of people still use it today. Point and shoot cameras are made with lower quality plastics, built in lenses, and electronic components. They're prone to damage more easily.

Point and shoots:
-It is easy to carry, compact and light
-not intimidating to others if you stick a camera in front of them. DSLRs can look menacing to people.
-it can take video.
-cheap. You break it? Buy another one!

In the end, it's a matter of personal preference. You can't deny both are capable of taking great pics. Actually, I have both a DSLR and a compact digital that I carry around. My DSLR takes better photos though, so in my opinion I would choose DSLR.

You and your friend take a photo in dark conditions and compare photos.

Set your camera up at it's highest ISO, and take a photo of a subject some distance away so that he can't use his flash, nor you will use yours.

While both photos might have some noise, your photo will be better.

And if you have a circular polarizer, put it on your lens and take a photo of water reflecting off the sun. You can dial in your polarizer to get a great shot, but he will end up with a washed out photo from the sun's glare. Also use the polarizer to darken the blue sky on a sunny day, or a reflection in a window.

Of course, this is due to the polarizer, but your camera has capability to use a filter - his won't.

And take a photo of a subject with the sun in front of you. I will guarantee that both cameras will overexpose the photo so that the subject will be dark. But you can put your camera into manual mode and change the aperture/ISO/shutter speed to properly expose it.

Then both take a photo and crop it in your computer. See which one has a sharper image at a high magnification. The superior optics of the DSLR should result in a better photo. Cropping an image sort of gives you an indication of what a huge enlargement of your photo would look like.

If you don't know how to do these things - learn, as you are not taking full advantage of your DSLR otherwise.