The 14 MP CMOS sensors used in the NEX series are good, but telling it's comparable to a D700 is pushing it a little bit too far. In terms of high ISO performance I'd say it's pretty close to a D5000 or the T2i. I was thinking about one, but the controls are just horrible. You access everything through a loooong menu, almost no dedicated buttons. It's really awkward. You know you can set everything the way you want, but you feel so helpless, with just a couple of small buttons none of which is actually assigned to something important. The one thing I liked in the NEX is the manual focus override - the moment you touch the manual focusing ring, you get a nice magnification on the LCD.
As for the lens, the 18-55mm kit lens is pretty good. It has outstanding center resolution, which comes at the price of corners - they are very blurred, more so than in most small sensor P&S cameras. Then there's also the 16mm pancake, but it's not that great. People love the pancakes from Olympus, Pentax etc, but this one is very different, mostly because of its focal length, which isn't really what you'd like in a walkaround lens. You won't find many good opinions on the 16mm 2.8.
On top of that, a NEX with the kit lens isn't exactly small. Yeah, it may be smaller than a D700, but it's definitely far from pocketable. Have you considered an Olympus Pen? The high ISO performance may not be as good, but paired with the pancake it's a really small camera with much more comfortable controls.
I'm intending to buy a NEX-5 with the 16mm 2.8 in a few weeks time. It's the same camera as the NEX-3 but has magnesium-alloy body and GPS.
I am no NEX specialist, but I'm pretty sure neither of the current NEX models features a built in GPS unit.