What's the Best Camera for Underwater Photography?
In short, pretty much any camera is capable of taking a reasonable photo. Whilst a camera is only as good as it's lens, many of the compact film and digital cameras made by reputable manufacturers have good quality lenses. Modern metering and auto-focus systems also help to produce good photos from some of the cheapest cameras.
The main difference between a cheaper compact based camera and the expensive systems (mostly SLR) is that they are capable of taking pictures in a wider range of conditions.

Taking Pictures on a Simple System
Compact cameras and acrylic housings are a great way to start in underwater photography. For some people it's a good enough system to record the things they see on a dive. For others it's just the start. They catch the bug and some 1000's of pounds later they've got a very fancy system.

Limitations of Compact Systems
The fundamental principle of underwater photography is to minimise the body of water. It just gets in the way! Too much water takes the colour out of the system and almost all of it has particles that reduce the visability. The aim, therefore is to get as close as the subject as you can. As a general rule 1m should be the furthest distance of the main subject from your camera. That's about the lenght of your arm.

Lenses
The lens on any reputable manufacturers camera will produce a decent result. However they are lenses designed for the majority of conditions on land. Underwater the best lenses are either ultra-wide angles or macro's (close-up lenses). Both allow you to get close to the subject, but with different results. A wide angle will increase the depth of the photograph. Things that are relatively near get pushed further away - the result is a picture that has a lot of depth to it.
Macro lenses, on the other hand, allow you to get extremely close to the subject focussing on just a small part of what you see.
Some compact camera systems have additional wide angle or macro lenses. These can work well, but have two main drawbacks - they add extra optics to the system, thus reducing the quality and they can be quite pricey.

Strobes
As soon as you start going a metre or two under the water the red light is taken out. Not only do photos look quite blue, but detail can often be lost. The only option is to use an underwater strobe (or flash). Although the acrylic housings allow you to use the flash on the camera there are problems with this. They aren't powerful enough and more significantly the light source is too direct for the lens.
All water contains particles and a light source from the same angle as the lens will simply light up the crud. This problem is known as backscatter. To get around it, underwater photographers will use a seperate flash at a different angle and some distance away from the lens. This can be on an extended arm or handheld.
Underwater strobes are not cheap and will often cost the same again as the camera and housing.

Shooting it Naturally
Taking photos in natural light can work well, but only if you follow some basic rules:

• Shoot upwards - photograph into the light for the best results
• Frame the subject - whether you use part of the wreck, the edge of a reef or some interesting coral, use it as a frame to help focus on the subject
• Keep it big - large subjects such as divers or larger fish work best