Pros: Great DSLR-like image quality, small size.
Cons: Simplified interface may appeal more to point-and-shoot upgraders than experienced users.
I've been waiting a while for a camera that is physically small and yet gives superior image quality. The Nex-5 is that and more.
We all know that the typical easy-to-carry point-and-shoot camera suffers as soon as the light gets low. You end up with more blurry and grainy photos. You can do better with a DSLR camera, but now you're lugging a large camera/lens combo everywhere.
The Nex attempts to bridge this gap by providing a sensor with the size and quality that you find in DSLR cameras with a very small body size. The quality of high-ISO settings (useful for low-light photography) is very good, but the camera has some additional tricks to help. It has image stabilization in the 18-55 kit lens, and Anti-Motion Blur and Handheld Twilight modes that also can give you a better low-light result using image-stacking.
Initially, the Nex-5 appears to have a simplified UI, similar to a point-and-shoot camera. It has an iAuto mode that many will find easy and useful (the main negative being that it tends to over-expose in many conditions, which you cannot modify in the fully-automatic mode).
But for those who want more control, all of the typical manual controls are here: PSAM, ISO, etc., and notably, RAW mode. Also worth noting is DMF mode, which allows one to easily fine-tune the focus manually, if you're not happy with what the camera did or don't trust it when you want to be very exacting with the focus point.
Video is pretty good for short, occasional clips, although, if you're serious about video, you might be better off with a dedicated video camera.
Physically, the Nex body is very small, but with the 18-55 lens attached, it is large enough to require a larger pocket, such as with a jacket, should you want something small enough to fit in a pocket. The 18-55 lens adds just enough bulk to make it not quite as small as you'd expect from such a small body.
If you're comparing this model against a DSLR, the main problem is that the technology used for the Nex and similar cameras will not AF as quickly as that in DSLRs. There are similarly-designed cameras manufactured by Panasonic, Olympus, and Samsung that are also worth comparing against (although the Nex's larger sensor maintains a bit of advantage in low-light capability).