I always disable in-camera sharpening entirely. The primary reason for that is that sharpening is an irreversible process; some image detail is always lost in the process of emphasising the edges in the photo. As such, if you're going to be doing software post-processing on your photo, you will probably want to keep as much of the original image detail as possible first, and then apply sharpening only right at the end after all your post-processing.
A second reason for foregoing in-camera sharpening is that there is no "one size fits all" sharpening formula that works in all situations; chances are that you will want to vary the sharpening parameters depending on the exact content of the photo. For instance, you'll want to bring out all the fine detail in landscape photos, whereas you probably don't want to emphasise every skin pore in close-up portrait shots. Another consideration is what you intend to do with the photo in the end; generally speaking, photos intended for on-screen display shouldn't be sharpened as much as photos intended for printing. As such, you will generally want the flexibility of manual control and fine-tuning of the parameters for the sharpening algorithms, instead of letting the camera just apply the same formula to every photo.
The main disadvantage to disabling in-camera sharpening is, of course, the fact that you're going to have to process each individual photo yourself. Many of us already do that, but if you're more used to simply downloading the photos directly from the camera and keeping them without any further changes, then perhaps enabling in-camera sharpening may be better for you.
I too remember reading from a dpreview thread that disabling the in-camera sharpening is better. So far, my digicam's sharpening is always set to soft. Then i will process it later using ps. Don't knwo whether it's worth the extra effort but it's not much trouble either
It's better to turn off the sharpening but the time spent on processing the pics may or may not be worth it (especially when there're many to process!).... generally I just leave the sharpness at normal and live with a bit of extra noise for the convenience.
Actually another advantage which I realised from lowering the sharpening is that you reduce the amount of jpeg artifacts. By lowering the sharpening, you reduce the amount of abrupt contrast changes in the image, which implies better compression in jpeg (less artifacts).
This will be a moot point if you shoot in super fine mode all the time. For me, I've changed to using "soft" sharpening on my S602 now, shooting in 6mp normal.
I believe the "soft" setting is the original state of the image which is captured by the camera.. which then applies the amount of sharpening if specified before saving it into the memory card. The camera should not be deliberately softening the image, unlike the effects of a soft filter.
Hmm.. likening the "soft" to be a more RAW setting sounds enticing.. as I supposed RAW images are not sharpened in-camera as well..
I'll need to do some testing to find the best combination for myself.. just wanted to know what is being practised by the old birds here..