Thanks for the recommendation. We're seriously considering this package of stuff. Does anyone else have any other recommendations or thoughts on this specific camera, good, bad, or otherwise?
I've owned the Rebel XS, T1i, and I'm currently on the 7D.
The T1i is when Canon started introducing Gapless Microlenses onto their sensors for the Rebels. This meant that light gathered for the sensor was gaathered in a far better way.
In plain English this means this is when they started to be a lot better for noise (grain from higher speed film) when the camera increases it's light sensitivity to compensate for either less light, or if you need to speed up the shutter for an action shot.
The sensor on the T2i is somewhat better, it'll be another $115 or so. But it's not the same leap that was made going to the T1i.
Between the XS T1i, the T2i, and the T3i, the important changes go something like this.
XS Is 10MP and alright. Liveview for photos but no video. 3.0 FPS Stills
T1i is when the introduced that really rad gapless microlens stuff for better light gathering and a 15MP sensor. Video in 720P. 3.4 FPS Stills.
T2i Got a somewhat better sensor than the T1i and 1080P video. 3.7 FPS Stills.
T3i Got a flip out screen and is able to make flashes that are not on the camera (like the 430EX II or 580EX II) fire. Not worth it.
The T3i is probably not worth the upgrade as you'll never really need two of those features. The T2i can be a nice upgrade, if you want, but that'll probably put you over the $800 mark.
Most importantly, always, always, always, always remember this.
It is the glass in front of the camera, not the camera body that will make the difference for photos. One of the best bald eagle shots I've ever seen was shot with a Rebel XT, which was before the XS. But that's because that person used a $1,600~ lens. Later down the road, (almost) always get a new lens before a new body.