Lorin Niculae has just posted some comparisons of these two kits on pbase which are worth a look and the conclusions are that the GF-1 does a very comparable image quality (at least at low ISO up to ISO 800), much better auto white balance, able to be hand held at slower shutter speeds, less optical distortion, but with a far smaller, lighter and less expensive kit.

There are some DOF, high contrast dynamic range, and high ISO image comparisons and of course the size difference which I have shown here linked from that pbase website:

Suggested settings for the GF-1 were setting sharpening at -2 to reduce halos and digital look, and boosting saturation to +1.

There is a forum discussion thread regarding this comparison here from which I have taken the liberty of giving some quotes which some may find useful:

Lorin:

• “the (Canon) 350d looks a toy compared with the gf1. The built quality of the pany is just amazing, except for the little left door which can be left open”

BruceK56:

• “I am amazed how sharp this lens (Panasonic 14-140mm)  is even at 280mm. I know it is a relatively large lens for the GF1 but compare it to my 1D Mark lll with 24-105 and 70-200 f4 IS I would have to carry to cover the same focal lengths!”
• “The GF1 is miles ahead of the (Panasonic) LX3 in quality from iso 200 up. Also the GF1’s iso 1600 is better than the LX3 at iso 400. As stated previously the GF1 will NEVER replace my big gear but it is a perfect compliment to it”

Neroangelo:

• “I prefer the grain from the GF1 at 1600ISO more than the (Canon) 40d. So much so that I sold the 40d.”

Pixee:

• “Jpeg from Pan is very good, but I have found that best results can be obtained with Raw using the new Phase One 5.1 or Bibble pro 5 . Noise Ninja included in Bibble pro 5 is very usable with GF1 raw-files. Also Lightroom 2.6 supports GF1 -raw.”
• “border sharpness is not especially good because of automatic distortion correction of the camera”

Just another of the many comparisons coming in on the net confirming how good the Micro Four Thirds cameras are for cameras of their size.