Digic's don't contain "software algorithms". That is in the firmware. Ignoring for a minute that software doesn't live in hardware. Amplification is not handled by the Digic either, it's handled by the onboard pixel level signal amps. Digic are ARM core based (I believe) processors with SIMD functionality. Digic's are just basic logic cores to control the machine coupled with some simd/matrix multiplication support circuitry. I would *strongly* suggest you research what ASICs are, and the functionality they general contain before you make any more statements about what the Digic does or does not do.
Although Digic 4 is a processor system, and firmware is in a separate memory chip, the net result is more speed and the ability to process more complex algorithms, and thus improve images over Digic III.
Its just a matter of nitpicking the wording that is in Canon's white paper quoted below, a person does not need to be a engineer and research ASIC's and firmware to know that cameras with Digic 4 produce images with less noise.
The DIGIC 4 processor first appeared in the EOS 50D camera launched in Autumn 2008 and is also featured in the EOS 5D Mark II. Compared to DIGIC III and the previous incarnations of DIGIC, the DIGIC 4 offers several advancements.
A more powerful processor can carry out more processing in the same time and therefore perform more advanced processing functions. The DIGIC 4 is actually about 1.3 times faster at signal processing when compared to a DIGIC III and this has several effects. It produces lower image noise for smoother images at every ISO setting and it also allows the extreme expansion (ISO) settings of H1 (12,800) and H2 (25,600) on the EOS 5D Mark II.
The extra processing speed also helps if high ISO noise reduction is enabled. The cameras can retain their burst rate and shooting speed in all but the highest level of noise processing.
Enlarge imageThe DIGIC 4 processor first appeared in the EOS 50D.
Much of the DIGIC 4 processing is similar to the DIGIC III but it has also added some new features such as Peripheral Illumination Correction to counter the possibility of corner shading, Face Detection AF in Live View mode, and UDMA class 6 card compatibility.
In the EOS 5D Mark II it has added the ability to shoot full HD 1080p movie with sound because the processor can deal with the data fast enough to process it out to the memory card without bottle necks.
Overall, DIGIC 4 means that the cameras capture images with visibly better image quality.
The EOS 7D and EOS-1D Mark IV both feature Dual DIGIC 4 processors. The benefits are the same as having a single processor in the EOS 5D Mark II, but with two processors the processing speed is faster â€“ this allows these cameras to deal with high resolution images at 8fps and 10fps respectively.
The extra processing power has also allowed 50 and 60fps HD movie recording at 720p as well as higher ISO capabilities, with the EOS-1D Mark IV featuring ISO expansion up to ISO 102,400.