Sure is, in the camera options, are you on froyo? If so its the botom icon on the camera screen, tap it and zoom (i see no point in zooming because it doesnt actually "zoom" but lowers the quality)
yes as described it's only digital zoom. The video camera however has no zoom capabilities at all and to my knowledge there isn't an app for it yet either. Don't know why, that would be as useful, if not more so.
Digital zooming is OK if you're just using the image to post online...at 5MP, the D2 camera has more than enough pixels to shed some via digital zoom and still provide a good enough image.
If you're printing D2 images, then it doesn't matter if you zoom or not, the D2 camera, IMHO, does not generally produce images that I would want to print. Camera is probably the most disappointing feature on the phone for me...