I would highly recommend the Nikon 18-200mm VR lens, I have this currently on my D40 and it is outstanding, a bit pricey but well worth it. You will hardly ever need to take it off for standard images. A worthwhile investment. Don't forget the lense needs to have the motor built in, i.e. DX's' range mainly.
I agree with Larry regarding 300mm and wildlife. You never get enough tele so if you're into shooting far away things, go for 70-300. I can almost guarantee you that wildlife shots will consistently end up past 200mm.
I got my D40 for Christmas and have been juggling this very issue. This is what I decided to do...Start with the 18-135, then add the 70-300, and the SB800 speedlight for my lower light work. I had originally toyed with the 18-200 VR, but the lack of availability got me to looking at alternatives. I had even considered the 70-200 2.8 for my low light work, but after reading and doing some additional research, I decided that the high-dollar option just wasn't practical and I still wouldn't have the additional reach that the 70-300 will give me. I can always add it later if the other two don't meet my requirements. Also, I'm still new the the DSLR world and am taking my baby steps, as hard as it can be sometimes. I like the BIG Toys!!! I'm excited about re-entering the SLR photography hobby. This is a great site and source of information and support!
Not really a answer to your question but still something that might be of interest. You can actually mount non-Ai lenses on the D40 without damaging anything. And there is alot of nice glass found really really cheap in its non-Ai versions. You will have to focus manually which is quite easy actually, both in respect to the focus screen but also the electronic rangefinder is quite accurate. You will also have no metering what so ever but that you will not have with any of the older MF-lenses, Ai or not, and it is terribly easy to adjust exposure after the histogram. I actually get better shots that way then to let the camera do the exposure itself. So, look on oBoy or in your local camera store and get yourself a nice 50 mm 1.4 non-Ai for 20-30 bucks and shoot away!
Thanks for the advice. I do shoot wildlife - 3 boys ages, 2, 4, & 6 - so hearing that I need 300mm is helpful.
One question on the 70-300mmVR AFS - is it too big for the D40?
Also thanksfor the advice about primes. I was thinking they were out because of the metering issue - but I'm definintely up for picking up a cheap used lense and playing around. What about the 50mm 1.8? I can probably afford that new.
The 70-300 should be fine as long as you support the package by holding the lens, not the camera. Thumb of rule, if the lens is heavier then the camera, hold it by the lens.
As for lenses, look at www.naturfotograf.com at the lens rewievs, and then go to www.photosynthesis.co.nz/nikon/lenses.html to find out exactly what serials you are looking for. Then get the best stuff, or second best, I usually go for lenses rated 4 on naturfotograf.com, they are decent enough and usually not as highly priced as those rated as 5:ers. But do check serials and stuff on photosynthesis so you know you are getting the absolutely right lens.
I can recommend the 35 mm f/2.0 non-Ai. Cheap as hell and a gem when it comes to optical qualities. It is also only slighter bigger then a 50 mm but gives you approximately the same FOV as a 50 mm on film. If you want a fast lens, go for the 50 mm f/1.4 non-Ai, cheap since it is a non-Ai but same optical qualities as the much more expensive Ai and Ais versions.