In a surprising move, rather than jumping on the compact large-sensor bandwagon à la Sony RX100 and Canon G1-X, Panasonic actually went down in size, from 1/1.6" to 1/1.7". This move seems surprising at first, but it allows for the lens to operate at a full stop wider aperture throughout the zoom range. This also means that the the size of the body and the lens don't change much, and it keeps it's 24mm equivalent wide angle, which is always a plus.
Another surprising thing is how the LX7 feels in your hand. If you are coming from the LX5, the tactile sensation is actually a bit disappointing, as the older camera feels a little weightier and more solid. While the body feels familiar, the rubber grip is a tad bit narrower than in the past and the camera is a bit larger overall. It doesn't feel cheap, just a bit more plastic-y. Part of the reason is because of the dedicated aperture ring on the lens barrel, which actually is plastic. Previous LX series cameras had a metal lens barrel with plastic switches for the aspect ratio selector; while the aperture ring is a welcome addition, it doesn't give you the same tactile joy of holding the camera. Does this matter? No, but because of the metal construction, the LX3 and LX5 really do feel like little Leica's (well, since Leica re-badges them, they are). You don't get the same feeling with the LX7. Having said that, I can say that the aperture control wheel has just about the right amount of resistance, and clicks into place.
We'll need to wait and see what the objective tests say, but my first impressions of the various sample shots are that LX7 is about one stop better in terms of noise control through it's ISO range. In terms of jpeg output, dynamic range seems to be improved in the shadow portion of the default tone curve, which is also less steep than in the LX5, which is a good thing as black tones don't fall off to absolute black as fast, allowing for more gradations.
A bigger plus is that the noise pattern is tighter and less obtrusive. There's noise, and then there's how the noise appears. In this case, I do think it's better on both accounts. Jpeg output looks thankfully crisper than what the LX5 was producing. In daylight shots, the jpegs from the LX7 look to be on par with what you could have gotten out of the LX5 using RAW, which is to say that the results are pretty good. Another welcome improvement is that low light auto white-balance is improved. The LX5 was fine in good light conditions, but did tend to shift towards a noticeably cool colour rendering in dimmer light. All of this works in the camera's favour... the LX-series has always been about being the hgihest end of compact cameras, but some of us keep compacts to get away from monkeying around in RAW all the time. We have dSLR's for that.
The lens is a new design; the front element is a bit more flush with the front fo the lens barrel. Optically, it looks like the lens still produces a nice fat sweet spot between f/2.8 and f/5.6. However, wide open at the wide and long ends, the quality diminishes noticeably. Corner resolution is very noticeably poor at f/1.4 and 24mm equivalent, which is no surprise considering how far you are asking the light to bend at such a lens geometry. There does look to be some electronic correction applied, (distortion, lateral chromatic aberration and vignetting) but truth be told, you can even see the drop in detail in the center of the lens. At the long end (90mm equivalent), the situation is better, but I think that it does suffer from lateral chromatic aberration again... some of the daylight shots at long-and-open look like they have a wispy veil. This usually cleans up in post processing if you use Unsharp Mask with a wide area and low strength setting.
What I would say about the added aperture power is that it is welcome, but use it carefully. I wouldn't be trying to avoid using the flash by shooting wide open in a dark room with this camera, the results are bound to be disappointing. However, as limited as the depth of field control on a camera such as this can be, the extra amount of aperture does open up some possibilities. The drop off in corner detail when the lens is opened up almost creates the illusion that the lens has more bokeh than it should be able to offer... its a great effect, but if used sparingly and carefully.
Video samples from the LX7 are thankfully better than the LX5. The LX5 is a terrific vacation camera, but it's video performance is let down by the dreaded "purple haze" caused by the ultra-fast lens. With the LX5, you have to shoot video in aperture control, avoid pointing at bright light sources, and you have to keep the aperture above f/4.0 to minimize purple streaking and flare artifacts. The LX7 is much better in this regards. A nice touch is the addition of the stereo microphone in front of the hot shoe, making this a much better all around video camera than the LX5.
The big gorilla in the room, of course, is the Sony DSC RX100, with its 20mp 1/1" sensor. The difference in surface area is roughly 2.6 times, so on a per picture basis, you would expect about 2 and 1/3's stop difference. From what I've seen so far, I think Sony's sensor technology is still ahead of Panasonic's, so the difference appears to be greater. However, the difference in pixels aside, at the same picture magnification, you'd be surprised how well the small LX7 keeps up, and in daylight shots, the difference is not so noticeable. The downside to the Sony is that the lens is a variable aperture design. On paper, if we were to talk about minimum safe hand-holding speeds, the LX7 is not far behind, since its one-stop lens advantage almost matches the larger sensor size; in practice, the Sony wins, as you aren't likely to get optimum results shooting wide open as you would have to with the Panasonic. And only the LX7 offers a fast 24mm equivalent lens; compared to the other cameras in this class, the Sony does things better, but the LX7 still does things that no other camera can do. Sony definitely changed the tone of the discussion on the internet, but I maintain that the price difference (as much as $150 US at the time of launch) really means that the the Sony is in a higher product category. The fanboys have drooled all over it, and rightly so, but be warned, for the same price, you could get a Nikon D5100 with a kit lens. That said, my local contacts in the retail scene have indicated that it sold fairly well in fall 2012.
So the sub-dSLR, sub-mirrorless camera wars are heating up. I always said the the Fuji X10 would have been my choice for an upgrade from the LX5, had it not been for the way that they handled the orb issue. If you handle these two cameras side by side, you'll see what I mean. The X10 has a more metallic construction, and feels more sturdy, just like the LX5. It's not an ergonomic mess like old Fuji compacts, and at ever ISO level, the Fuji produces cleaner output. The orb issue is a major downside, though. Even though there is a replacement program in place, you have to be absolutely sure that you are getting a camera with the updated sensor. One thing that web reviews don't convey to you is just how fast the Fuji X10 focuses... a dare say it, but it's dSLR fast. There's simply no comparison between the two... LX7 is merely average, the X10 is a generation ahead in terms of AF acquisition speed. That said, Panasonic still has better image stabilization. Half-press the shutter button on the Fuji X10 and the image is mostly stabilized, do the same on a Panasonic camera and the image is eerily still.
However, time marches on, I think that for the very best in traditional compacts, the LX7 is fairly competitive, but it's the sort of camera that you have to want. The RX100 is one of these cameras that appeals to a lot of people simply because it's the best at what it does, sort of in the same what the people gravitate towards Rolexes and BMW's... being the top of the heap sells itself, even if that's not what the customer needs. However, a whole new market space has opened up between m4/3 and traditional compacts, as seen by the Sony RX100. It's an interesting time in the camera world again
Here are some LX7 image samples on the web:
Digital Photography Review