Just as the original Leica created a furor with its "miniature" film format ("It's too small to be good!"), I believe that small sensors, while limited as far as image quality is concerned, do have a role, as Bill has shown. What the smaller digicams have missed, though is the user interface, which is what Leica had in abundance when it was introduced.
With all the buttons and menu structures of a digicam, a street photographer has to spend a significant amount of time essentially learning how
defeat all that stuff and just apply his/her knowledge and skill to making pictures.
Only the R-D1 and M8 come close to being a straightforward RF in the digital world. Bill seems to have found a spot for the G9, Alex Majoli has used the Oly 5050 much like an RF, and I'm sure there are others.
As the p&s digicam models continue to roll out, they all want to cram more pixels into the same small space, which introduces more image quality issues ... so if I find a digicam that has the handling I want, chances are the image quality is crap.
Aside: I recently put a LF lens up for sale on eBay, and used my lowly C2000 with a whopping 2.1MP sensor to make the photos.
I shot it in SHQ JPG, and the quality was very good for an "obsolete" camera.
I could live with this camera if it could be set up and handled like an RF, but it can't.
For a small, discreet street camera I resort to the XA. The 35SP is the size of an M (literally), and gives me more control, but the XA is actually less visible to others. Give me a digital XA with APS-C or (gasp!) "full frame" sensor, and I'll be happy. As long as it doesn't cost $5k.