Okay, I have tried out the E71, the 6650 Flip, and now the 5800 XPress Music, and all of them take grainy pictures. I had first thought it was a camera issue, but seeing it has happened on three S60 devices with three different cameras, I am now thinking it is a software issue.
Its not S60, its the cameras in those phones. Typically Nokia puts better photo/video quality into their N Series line. The N95, N96, N82 and N86 are all very strong on multimedia creation and have cameras with Carl Zeiss lenses. I love shooting photos and video with my N95. You can pick up a N95 now for $300, quite the bargain now.