I have an E-510 and I never use the scene modes. I usually use the program AE (P) and aperture priority (A) modes. However, I have just taken some test photos using the night mode in both a light and dark room with no problems at all. It's a great camera and I've never had any problems with it, so I think there must be something wrong with the one which the salesman was using.
Subjects which are too far away are dark when using flash with any camera, but you can make the flash a bit brighter by using the camera menu. You could also buy a flashgun if you feel the onboard flash isn't bright enough.
Olympus E-510 | ED 14-42mm 1:3.5-5.6 | ED 40-150mm 1:4.0-5.6 | 35mm 1:3.5 Macro | Giottos MTL8361B & MH-5001 3-way head | Lowepro Orion Trekker II bag