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Does shooting at lower resolution help the noise?

In a theory yes, but only limited. When the camera is switched to lower resolution, it still takes the full resolution image, which is then scaled down. Scaling the picture down reduces the image resolution and so the noise (because of removing certain image data). However, because the camera needs to be quick, the image scale algorithm used in camera is less precise as if you do the same on a PC.

Here is an example..

The top part of the image is a 100% crop from the 10MP photo resized to 5MP on a PC (using XNView image resize - Lanczos algorithm).
The bottom part is taken directly in camera set to 5MP resolution.
The top part is a bit more noisy but also a bit more detailed (see the brick wall). It seems to me that the camera first resizes the photo and then apply the noise reduction. This is why the bottom part is a bit less detailed.

Conclusion: Switching the camera to lower resolution will not help much with noise. If you want less noisy pictures, use a 3rd party denoiser (like Noise Ninja) on a full resolution photo ;)

Test photo by Win Dijkink: http://www.pbase.com/wdijkink/gx100-test
 

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