I once paid $999 for a Sony digtal camera that was 3.4MP. That was about 8 years ago and I still use it. I never dreamed that my cell phone would be just under that resolution. Back then 3.4MP was crystal clear.
Your 3.4 MP camera's probably a lot more "crystal clear" than the upcoming iPod cameras.
Resolution doesn't guarantee quality... there are plenty of high-res, ******-image cameras out there.