Good question ... it is a marketing tool as is the pixel count and video feature in P&S cameras.

I think they are all here to stay. Even the elimination of the viewfinder and forcing the user to use the LCD at arm's length ... increasing the chance of camera movement.

For some, the quality of the image is less important than, simply, capturing the image. So, if some user zooms in to catch a close up of the monkey at the zoo, he's happy just to have a four by six inch print so show friends.

The such a user, digital zoom is NOT useless, but a pretty handy tool. Remember, three megs is plenty to make a decent four by six print, so, someone with a five megapixel camera can use digital zoom to good effect and STILL get decent small prints.

A contact of mine used the digital zoom feature to frame the shot and force the camera to focus on a specific distant object rather than an object in the foreground on the same path. Whilst the resulting image is no better quality than the same photo taken with out digital zoom and cropped to the same "frame" it does get the desired object as sharp as possible with the equipment at hand.

I completely agree with most of what's been said above.

It's a gimmick. It's crap. It's terrible ... etc. And I tell my students this all the time. Digital Zoom is EVIL!!!

And then, one morning I awake, look through the bedroom window into my backyard, check out the bird feeders ... and notice that there's this crazy squirrel - I've named him/her Herky - lurking on the porch roof of my studio, watching the birds at the feeder and waiting for his chance to pounce.

I've never seen a squirrel sprawled out on its belly before.

So, of course, I fire up the trusty little Canon S3is mounted on a very sturdy Manfrotto tripod that's standing next to the window (What? Doesn't EVERYONE always have a camera setup on a tripod somewhere in their house?)

The S3 already has a 12X optical Zoom. But, just this once I want to get in so close that I can see the expression on Herky's face.

Jump into the Menu, activate the evil Digital Zoom, and away we go!

Check it out here:
http://flickr.com/photos/grimitz/2503727480/

Yes! Of course, you can see the digital noise. And it's not something I would ever try to market.

This one was shot at 48X, for Pete's Sake!!!

But ... oh well ... there I go ... violating yet one more rule of good photography from among the thousands I've accumulated over the past 40 years of photography.