It's come down in price since the release of the D60, and I've loved it since we bought it. It's basically the same as the D40, with 10 megapixels instead of 6. Everyone will tell you that 6 is plenty, and for 4x6 or even 8x10 it is. Where I've found the extra MP coming in handy is in finding a small portion of a shot that makes a great picture on its own, then blowing that bit up into its own picture.
I agree to start with the stock lens and go from there. I ended up with the 55-200 for arty-farty shots (I have a tripod and took a basic class, trying to mess around with "real" photography, for what it's worth). For the most part, though, I use the stock 18-55; if I'm taking pictures of my son playing with the dog in our living room, I don't need the extra weight and cumbersome-ness of the 55-200, so I like having the 18-55 rather than just having a zoom. Also, while the D60 comes with an 18-55 lens with VR, I've never noticed enough camera shake with that short a lense that I felt I needed VR; I really only notice that with the 200 extended all the way out and hand-held rather than on a tripod, in which case VR makes a big difference.
Anyway, it's a great camera, either the D40 or the D40x. I'm sure the D60 is great as well. What swung us to the Nikon over the Canon was that while the comparable Canon at the time had more features, everything we read and heard was that Nikon lenses were better quality, so that you could really rely on the lens that the Nikon comes with, and with the Canon you'll be more tempted to replace the lense altogether. The Nikon also just felt more solidly constructed to me, and the Canon body felt like a cheaper plastic. That might not mean much at the end of the day, and they both take great pics, but it was enough to swing me into the Nikon camp.
Here are some of my D40X pics:
Flickr: Chudfish's Photostream