Goldilocks,
Whether I zoom in, or out, largely depends on the subject matter. I have no rule on this. I find taking a panorama usually calls for some thought anyway, so some "playing around" is tried. I often end up with more than one "set" of photos for a panorama. Post-processing in PhotoShop quickly shows up the better (or more suitable) set of photos.
The Canon A80 can stitch left-to-right, or right-to-left, in "stitch assist" mode (not vertically) . . . but of course there is no reason why you should tie yourself in to stitch assist. When you're familiar with the camera there is nothing stopping you from taking a series of overlapping photos using whatever manual settings are appropriate. A couple of those panoramas shown above were taken without using stitch assist.
I've used PhotoShop 7, CS and CS2 to do panoramas . . . sometimes I use it's batch automated option, and sometimes I set them up manually. I usually give the batch option first go, then if it doesn't nail it too well I resort to taking over myself.
re. Seeing examples of what some cameras can do . . . here's a link to photos taken with the Canon S70 . . .
http://www.pbase.com/cameras/canon/powershot_s70 The Pbase camera database is a useful link to have, to see what various cameras (and lenses) can produce in some folks hands.
P.S. . . . I've been looking around at some other cameras which might be suitable for you, and the little Panasonic Lumix LX-1 might be a contender (RAW capability, decent lens, manual overrides). Failing that I'd jump for a Canon S70 a.s.a.p. before the old stock is taken from the shelves. By all accounts it's a helluva ultra-compact.