In my opinion, FZ3 has better picture quality ; S1 IS has better movie quality.
I bought the FZ3 because I treat it purely as a camera and I like the Leica Lens. The following review has direct comparison of these two cameras: http://www.dpreview.com/reviews/panasonicfz3/
shake vigorously and shoot, see which has a better quality. I do find Canon are overpriced, and their prices drop drastically as they keep coming out new products.