"If you keep in mind the main development concepts of the Olympus E-System such as 'maximum image quality' and 'mobility', then the answer to this question is obvious - inside the camera, of course. If the need to incorporate an image stabilization mechanism had to be taken into account when designing a lens, image quality would most certainly suffer. The size and weight of lens would also be increased if it had to incorporate such a mechanism. The result would be both lower quality and less mobility.
On the other hand, if you put the image stabilization mechanism in the camera body, you can stabilize the image no matter what lens you use, including all existing ZUIKO DIGITAL lenses. In this way, both the camera and lens can achieve their maximum potential, providing both the very best image quality and maximum mobility."

"The actual amount of camera shake is very small, and control is performed at the submicron level.
Camera shake is mostly caused by vibrations in the roll and pitch directions produced when the camera is held. The amplitudes are very small, making accurate measurement difficult. Measurement is further complicated by the fact that the interior of the camera is subject to vibrations generated by various moving components such as the mirror and shutter. If these vibrations interfere with the measurement of camera shake, image stabilization performance will be degraded. However, because accurate measurement of camera shake is indispensable to high image stabilization performance, it was essential that we find a way to install the gyro sensor used to measure camera shake in a location with minimal camera vibrations. In addition, we coated the sensor with a buffering material to further reduce the effects of vibrations from inside the camera.
Since the E-Series is based on the FourThirds System standard, the amount of image displacement due to camera shake is much smaller than with other digital SLRs provided that the camera shake angle is identical.
On the other hand, the need for image stabilization accuracy is much greater with the E-Series than with other digital SLRs.
We solved this problem by independently developing the SWD (Supersonic Wave Drive) motor, which features high response and controllability.
Based on a motor that we originally developed for use in microscopes, the SWD motor offers both high power and low energy consumption.
The SWD motors compensate for camera shake by shifting the image sensor unit, which incorporates a low-pass filter, the Dust Reduction System and the image sensor unit, in the opposite direction of the detected camera shake.
To assure quick response with any lens, two SWD motors are used for the horizontal and vertical drive and a dedicated CPU is used for high-accuracy control.
The motors are designed with enough headroom to make sure they are compatible with possible future lens lineup."