Hey Skriz good question! Red eye is caused by the red blood cells on our retinas. Light from the flash enters the pupil, hits the red cells, and reflects back to the image sensor. There are a couple of ways to "reduce" red-eye. First and most effective is to move the flash away from the lens. On a point a shoot camera that is impossible, with the built in flash. Second is to reduce the size of our PUPILS. You can use a flash light to shine at people and close the pupil before you take the picture. (This WILL NOT make you very popular.) Third is to increase the ISO settings of the camera so you don't have to use flash. This may or may not be practical though. Fourth way is to remove it in PhotoShop!
My favorite way is to use an External flash, and bounce it from the ceiling, or use a flash diffuser if I can't bounce it. Try this, make a simple diffuser out of a piece of paper. Maybe you could make a small paper dome over the flash and tape it in place. I know it would look funky, but it may help, and the diffused flash will give a very nice look. I wish I could give you a sure fire cure, but Red-Eye is a fact of life with P&S cameras.



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