I'll agree that a Powershot is a good first cam. It takes good pictures, is easy to handle and also has manual controls. You never know when a first-timer will love using manual controls and accel to better, more expensive cams and have it become a hobby.
That's basically me.

I began with an old 2mp Powershot A40. I played with manual controls once I got the feel of the cam and I now have a Sony H1, which has a few more controls, megapixels and zoom. I'm sure my next cam will be more expensive yet and much more advanced.
If they don't take to manual controls and only want to use it as a point-and-shoot at a birthday party, it'll do the job wonderfully.