I think that camera is decieving you in how big it can take images... It appears only to have two sizes, a 3 MP image and a 640x480 image. This might be a problem, it might not be.
Even though I have a 4MP camera, I still take most pics at 1600x1200 because I havent bought another card yet.
It is also a fixed focus camera... Which may cause problems depending on what type of pictures you are taking.
I would be careful buying a HP digital camera. Its much safer to go with a Canon/Kodak/Nikon/Olympus etc...
Kodak has a few cheaper cameras now which look pretty good: (Such as)
For $399 you can get a 3.1 MP with 3X optical zoom. This one looks a better option than the HP, but its a little bigger.
I think the Olympus MJU cameras are nice and small and they are waterproof. This is the most stylish camera i think, but lacks manual features, but you said you dont need this anyway. It also costs more.
For one that looks similar to the HP above, Canon A300. This also doesnt have optical zoom, but its 3MP, and about the same price as the HP ( A300 is $399).
This camera would kick the pants off the HP as well.
It takes 640x480 movies with sound, where as the HP doesnt do movies.
The flash on the Olympus MJU is a 'little' more powerful than the other two, and may be better for 'parties', but its also more expensive, but the flash on teh HP is limited.
http://www.dpreview.com/reviews/sidebyside.asp
This site is helpful, it lets you compare different cameras specs side-by-side.