Here is a a lesson on digital photography 101:
a 2mp camera produces a file that is 1200x1600. Yes, you can get a 8x10 from a 2mp camera, but that is at 150dpi. Depending on the printer, either it will look great (dye-sub printers) or OK (ink-jet printers). With ink-jet printers most feel that to get good or great results you need to print at 240dpi. With a 2mp camera that means a print size of 5x6.5.
At 3mp you are looking at a print size of 6.4x8.5 at 240dpi. So it is not hard to see that you can get an 8x10 at a slightly lower resolution (about 200dpi).
You may be a little young to remember some of the film sizes, but megapixels can be looked upon by some of the film sizes through recent history. IMO, the 2mp camera is like the old Disc or 110 sized film. Great for the 4x6 and good for 5x7's. *x10's are pushing the limits. 3mp cameras are like the 126 or APD format. 4x6 and 5x7's are great. 8x10's are good to very good.
If you can wait till your next big paycheck I would say saving for that 3mp camera makes the best sense.
For value the Canon A75 can't be beat:
http://www.penncamera.com/store/view.cfm?id=5213
It offers a lot of future capabilities.
For Price alone the Canon A310 can be bought on your budget without saving, but is more limited:
http://www.penncamera.com/store/view.cfm?id=5208
A good in between is the Canon Sd110:
http://www.penncamera.com/store/view.cfm?id=5262
Some other choices (particularly if are willing to wait till the next paycheck):
Pentax S40 (a 4mp camera)
http://www.penncamera.com/store/view.cfm?id=5224
Minolta X31 (a very compact 3mp camera, very nice feature set):
http://www.penncamera.com/store/view.cfm?id=5615
You have to decide on the value of some of these cameras. I would suggest though that you look at some of the smaller cameras. They will be something that you will carry around, as opposed to leaving it behind. I use the Pentax S40 as my go everywhere camera myself. And buying a 3mp or 4mp camera will mean that you would be less likely to want to upgrade later.