Now-A-Days point and shoots are getting better and better. You can get a decent what they call "DSLR like" camera, meaning it's not quite an SLR but has the qualities of one such as limited control over aperture and shutter speed, ISO, things like that. Most point and shoots are like that but these DSLR like cameras have better control. With that comes a price though, I've seen prices in the 450 dollar range, and what comes to mind is "Why spend 450 on a point and shoot when all you have to do is just look around for a used DSLR body". It depends on your budget. If you have the cash, spend it on an DSLR. I'm not familiar with Nikon at ALL. But yes, a D40 would be a great step up from the S700. In my opinion the S700 will be a great learning tool for the basics, a DSLR will enable you to fully use what you learn. Good luck!
Ben