Certainly the Nikon makes more sense!
The M's are the "real" Leicas and yes, they can be very expensive -not to mention the glass! I have an M6 and 8 now and love them to death. They feel like a Luger in your hand -nothing even comes close, but I still do grab my Nikons!
The alternatives in your price range would be the Panasonic "joint effort" cameras.
They are compact cameras w/ fixed lenses.
C-Lux: I'd probably skip.
D-Lux models, namely a 4 or a 5 are rather nice and very pocketable. I own the predecessor, the 3, and it is a wonderful grab and go type of camera. These are all remarkably petite and have the fastest lenses of the compacts.
V-Lux: The 20 or 30 are interesting, but perhaps a bit too similar to the C-Luxes. The V-Lux 2 is something a bit different, being more bulky and handling more like a DSLR. It is, however, considered by many to not be as good at its predecessor, the V-Lux 1. I have a 1 and it is a very versatile camera with an immensely flexible encapsulated zoom. This is key in that it is truly sealed and does not suffer dust incursion typical to zooming lenses. It does have an electronic VF (which I mentioned drives me mad) but it is otherwise a great camera and rather affordable on the used market.
Curveball! The X1: Out of the price range new, but they have been descending and may be worth a look as well. They seem to be a bit of a LOVE/HATE camera.
If it were me and buying new, I would look at the D-Lux 5 if you want something small, unobtrusive, and very elegant. If used doesn't bother you, a V-Lux 1 if you wanted something a bit more hefty and versatile.
And don't discount the Digilux 2 that you started with...
