You are going to get a lot of "Here is what I have and I like it", kind of answers and that is fine. Here is another.
I have gone through the process of starting out with a low end P&S and found myself continuing to upgrade. I have reached the point where I have a 4/3rds camera and gear that I think takes great photos underwater. Here is a system that in my view is a great starting point.
http://www.opticaloceansales.com/ol...complete-olympus-pt-ep01-system/prod_801.html
$1699 for this - which includes the Olympus E-PL1 camera and zoom lens.
If you call him, he may be willing to bargain.
Reef Photo and others also can configure a system with variations.
You can pull together your own system as well. If I had about $1500 or a bit more to spend, I would skip the P&S path. The 4/3rds configurations are not much more expensive or bigger. In fact when I went from a Canon P&S system to my current 4/3rds system, my overall bulk went down. Mostly because of the smaller strobes.
An alternate to the strobe in the package above is to get the INON s2000 strobes.
small and powerful.
I would get some of what I have
Shop around for some deals on component prices.
Oly E-PL1 camera with lens = ~$430 (maybe $399 at Best Buy)
Oly case - ~$470 - replaceable ports, nice design, made by Sea & Sea.
Tray and arm - ~$150
INON s2000 strobe - ~$470
cable for strobe - ~$80 (possibly don't really need it, but good to have)
You can use these in a point and shoot mode, not worrying too much about setting aperture, shutter speed, strobe levels, etc, but this system has all the flexibility to let you go really far with manual and other less automatic modes when you are ready. The image quality can be amazing.
If you go with a decent P&S like the Canon G series or the S90 / S95 you will be in the same range unless you buy the Canon housing and then you will save a few hundred dollars, but you may be out shopping for a better housing pretty soon.
What Gilligan says is important. You need to find out how much you really like U/W photography, but a good setup will help with that.
The Oly housing has an adaptor where you can add external lenses for super close-ups if you want.
BTW, The canon camera in a canon housing is really good. I use one for my backup and have gotten some great pictures with them, but for that higher level, and still within your budget (or close) there are better options.
With any system, good pictures are the result of the photographer, not the camera. You can however, just as in other pursuits, improve your results with the right tools.