Going back to that small sensor, the V1 produces good image clarity, returning a respectable 1400-1600LPH (horizontal & vertical) on our resolution chart. The score isn't too far off from the best performing Canon S95 compact camera or the Olympus E-P3, but doesn't match the high performance of the Panasonic G3, which currently has the best looking images we've seen from a Micro Four Thirds camera.
You'll need to keep the ISO settings low though, as noise can be seen in images starting from ISO800 onwards. It's a matter of preference, but for some ISO800 will be the upper limit, and for others it'll be ISO1600. At ISO3200 image noise is too prevalent to dismiss. The V1 seems to introduce more color noise than luminance noise into the image, so you'll see color speckles at higher ISO settings, especially in dark areas.
Still, the ISO performance is quite a feat when you think about how small the sensor is, and we think that for the casual user who doesn't look at images at 100%, shooting at ISO800 should be fine. If it gets too dark, they can also bring more light, but remember that the V1 doesn't come with a built-in flash (unlike the J1), and they'd need to get the optional flash attachment.
Micro Four Thirds cameras aren't very usable above ISO1600 today, but their images from the latest cameras are cleaner than the V1's. Nikon sweetens the 1 mount with an optional adapter that lets you mount existing Nikkor lenses, together with auto-focus, but you'll have to contend with the 1 mount's 2.7x crop factor, which means a 35mm lens becomes an unusual 94mm equivalent.
The extreme crop factor can be both good and bad. We found ourselves continuously reaching for the other kit lens; the 30-110mm, with the 2.7x crop, the lens became a far-reaching 81-297mm. Together with the quick AF and fast frame rate, we were drawn into shooting sports and animals with the V1. With its qualities, It's probable that the camera will find a following with a niche audience with sports and nature photographers.