DPReview really likes the Sony H2, giving it a highly recommended rating and a slight edge over the PowerShot S3. One of the deciding factors was the $100-less price tag, making it a better value for the buck.
I'm disappointed that Sony also decided not to include RAW mode with this camera. If they had, I would have recommended it over the S3. But as it stands right now, I have to say that it comes down to personal preferences. Both cameras are solid, and you almost have to hold each of them to decide which one is for you.