yes, it's still very capable. Just look at the number of people still shooting with it.
One of the best camera choices for sub-£400 in my opinion.
Will, if you're choosing which system to invest in, I think you should only really consider two things, ergonomics and lenses. Also, I don't think you should limit yourself to canon and nikon, because Sony, Pentax and Olympus are all worth considering.
Each brand has their own style of ergonomics, which some people will love and some people will hate.
On the lenses front, all the brands have a good basic selection, but they each have their own stand out lenses that aren't rivalled.
For example:
Nikon (and sony) have a superb cheap 35mm f/1.8 prime which goes really well on crop sensor bodies, and in the more expensive area nikon have the unrivalled 14-24 f/2.8 wide angle and a 24-70 that is generally considered sharper than canon's.
Canon have a superb 70-200 f/4L as a budget telephoto with superb image quality, a very specialist MPE-65 macro lens and more choice in the sub-£2k super telephoto area (300f/4L IS, 400 f/5.6L)
Olympus do compact yet extremely high quality and weather sealed zooms and primes
Pentax do superb short primes and pancake lenses that are superbly suited to the in body stabilisation and has the most backwards compatible mount (any K mount lens will mount and function as fully as it can)
Sony have superb autofocus ziess lenses and the best in class super-tele zoom (the 70-400G, which pips the also excellent canon 100-400L for image quality)
And sigma/tamron/tokina lenses are available for all mounts which gives a wider lens range (particularly with brands like pentax that have a gap in the super-tele zoom area, which sigma fills nicely with the excellent value 150-500 and 50-500).
I'm rambling a bit now, but my point is that even though all the brands offer excellent and reasonably comprehensive lens ranges, each has their individual strengths, and it's worth taking that into account so that if you find yourself after a more specialised lens later on, you don't find yourself envying another brand.