Ugh, being a big Nikon fan and long time supporter, I hate to say to stay away from the Nikon 1 System. There are just so many disadvantages to the system, especially when similar priced cameras offer so many more advantages.
Nikon is using a new 1" "CX" format sensor, roughly *half* the size of a typical APS sized sensor and still significantly smaller than even a m4/3 sensor. What this equates to is very poor noise handling (when compared to a dSLR or m4/3 body). It's a step up from some of the P&S's, but IMO, just barely. I have a feeling I know why Nikon did it, it eliminates the decision of "do I want a m4/3 body or a "full size" dSLR?" I really feel that Nikon thought that a m4/3 sized sensor would cannibalize some of their dSLR sales. Forget all of the bells and whistles of what the camera can do, image quality ultimately comes down to the glass in front of the sensor and the sensor. Sure it's great the camera can shoot stills at 60FPS, but if they're not acceptable quality, what's the point?
If you want a small body but still great image quality, I would definitely look into the Sony NEX system, specifically the 5N. They're nearly identical in size, but the Sony has a nice "grip" to actually hold onto the camera. The Sony also has an APS sized sensor, the same size in most dSLR's today in fact. The Sony has FAR better noise handling, image quality and twice the battery life. They also offer a higher resolution display, better dynamic range and they also offer twice the available lenses. The Sony also offers 16mp vs the 10mp of the Nikon (for the record, there is nothing wrong at all with a 10mp camera. My old 6.1mp Nikon D100 will still run circles around many of the brand new 14+mp point and shoots, *however*, the additional resolution in the Sony will afford you some extra liberty when cropping a picture if you can't get the initial composure that you would like).
The Sony runs $700 with a 18-55 (27-82mm, 35mm equiv.) where the J1 runs ~$600, with a 10-30 (also 27-81mm, 35mm equiv). In a heartbeat would I spend the extra $100 on the Sony. This says a lot since I typically heavily dislike most things Sony and love Nikon to death.
If you don't like the Sony, look into the other offerings in the m4/3 lineups. I don't follow them to heavily as I feel they're a poor offering compared to the NEX line, but there are certainly a lot of people that love them! Hopefully BobQuincy will chime in on those as I know he has recently converted to m4/3 and has fallen in love with it.
I know I've painted the Nikon 1 in a terrible light, but it IS capable of making great images. You're just not likely to get great images in low light, dark rides, moving objects (kids), etc. Still objects will do just fine if you have a tripod, but I go back to that point of, if there is better available for similar money... My other fear of buying a Nikon 1 system right now is that it's not established. I really don't see the CX system doing well, which means Nikon will drop it, so the 4 currently available lenses? That's what you'll be stuck with.
My 2c. HTH