Unfortunately, the Venus III engine really kills the fine details in JPEG output. The things improves if you select LOW noise reduction in [Pict. Adj.] menu. However, the best possible results can be achieved by shooting to RAW and denoising the images with Noise Ninja or similar tool.
Here you can see some comparative full res. crops from ISO 400 photo taken with FZ50. Although the physical size and form factor of FZ50 sensor is slightly different from LX2, both cameras use the same Venus III engine, so they are well comparable in terms of quality.
These crops were taken in JPEG with two different levels of JPEG noise reduction and also RAW data cleaned by noise ninja. As you can see, the RAW file cleaned with NoiseNinja is perfectly usable and in terms of preserved details clearly outperform any JPEG shot, even with lowest NR.
http://filexoom.com/files/view/15340/ISO400_crops.png
Unfortunately, RAW files are too large, slow to write and problematic for later editing/archiving. So shooting in RAW is not very useful for everyday photographing. It would really be great if we could be able to turn the in-camera noise reduction completely OFF, so then we would be able to get the same level of details as in RAW, with much faster writing and smaller file size.
And this is the reason of just started petition for LX2/FZ50 firmware update, which will allow us to turn the picture adjustments completely off. This option should allow us to get the maximum possible resolution and details form JPEG, which now have smudged details, due to strong NR (even at LOW level).
If you wish to take a part in this petition, just go and sign yourself here and don't forget to tell the others about it..
http://www.gopetition.com/online/9523.html
The images then looks like watercolor paints or so.. 
:embrass: 
