It's an "EVIL" camera -- Electronic Viewfinder Interchangeable Lens.
The micro-4/3 sensor is only slightly smaller than the APS size chip in the basic digital SLR. It's much bigger than any point and shoot camera sensor. It's the same sensor that you'll find in the professional Olympus cameras (E1 and E3), along with the regular 4/3 system cameras. (The "micro" refers to the lens mount, not the sensor itself.)
All in all, the G-1 is an interesting little camera. "Little" being the operative word. The two zoom lenses are tiny, and cover a focal range equivalent to 28-400mm on a 35mm film camera. The lenses feature built-in stabilization, which is a great feature (and one I get a lot of use out of with my Canon lenses.) Sure, there are issues with using an EVF for everything, and the camera may be too small for some hands, but the camera body is about 12.5 ounces, compared to 17 ounces for a Canon Rebel, so the weight savings may be worth it for lightweight backpackers who want to carry an SLR, er, EVIL camera.
I'm quite interested to see what will come out of this format. A good online review is at Luminous Landscape:http://luminous-landscape.com/reviews/cameras/panasonic-g1.shtml