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This actually a really common problem among Canon point and shoot cameras. There are a couple of methods that have worked well for others.
1. Open the battery compartment and remove the batteries. Then take a regular wooden pencil and place the eraser end down onto the battery contacts. Rotate the pencil to remove any corrosion. Sometimes a lack of proper battery contact will result in the low battery indicator.
2. Take a toothpick and wedge the tip under the battery contact and break it off. This will put more pressure between battery and contacts.
You can also try installing 3rd party firmware at http://chdk.wikia.com/wiki/CHDK_in_Brief This is a bit technical and will probably void your warranty, but might be worth the try.
The most likely problem is the batteries. You don't mention which ones you have - if they're rechargeable, charge for 10 - 15 hours even if the charger indicates a full charge. If those rechargeables are a couple of years old - replace them. If using non-rechargeable, be sure they're NOT "heavy duty" or "super heavy duty" - those are useless, for toys. Get fresh alkaline batteries.
I found you because 10 minutes ago, my camera exhibited the same behavior as all yours. All of a sudden, the red and green lights started blinking on and off and nothing worked. I just tried switching batteries and the camera is working! I am using a couple of RCR-V3 Li-ion rechargeable batteries, which I purchased on Ebay three months ago. Thought I'd pass it on.
Some cameras have a bettery setting in the menu. You need to make sure this setting is set to the type of batteries you are using. Usually when you use akaline batteries and even if you put in fresh batteries but still get the low battery indication then your camera is set to rechargable (Ni-Mh). Ni-Mh has more power to it then alkaline so this is why you get the low indication.
A quick test would be to purchase a set of Duracell Ultra Digital batteries and try them. They won?t last for very long; however, if they make the red light go away then you problem is either the batteries you are using or the charger. More often than not its going to be the batteries so we?ll start there:
Check your batteries, you should be using Nickel metal hydride (Ni-ME) that are rated at 1450 (I use 2500) mAh or better.
If the batteries are more than one year and you?ve used them a lot then its likely the batteries just aren?t holding a charge anymore. Purchase a new set or borrow a working set from a friend. Charge them in your charger and try in your camera, if the red LED goes away use the batteries till they need charging again. Charge them in your charger and if the red LED stays off then the batteries were the problem.
If the red LED returns then try charging your batteries in someone else?s working NiME charger. Put them in your camera and if the red LED goes away then your charger is the fault.
Not the camera obviously - works OK
Replace the NiMah batteries- get several sets and keep one set in the bag charged with one set in the camera.
You may be able to 'refresh' the original batteries by putting them into a small flashlight and running them until the bulb goes out.
This discharges them completely- then recharge.
It is said batteries have a 'memory' so that a battery that is down say 50% and recharged will only recharge that 50% and the other 50% is lost for use. So you have to flatten the batteries completely
I had the same problem and i called up cutomer support on 1300 659 678 (Australia) and they said that the problem may lie in your batteries. It was advised that you use Lithium batteries, and to avoid use of Alkaline, since they dont have the required power to operate the camera which is why it turns off right away.
As to what type of rechageable batterires to use i am not sure, i think it was Nickel-metal-hydride (NiMH) batteries.
Hope this solves your problem.