I have decided to adopt Nagios for our infrastructure. We were going to use Logwatch, but after seeing some of the things in Nagios like log rotation I am wondering if Nagios is capable of sending daily\weekly reports similiar to Logwatch aka replacing Log watch?
There are quite a few addons you can use with Nagios to extend its functionality and therefore customize it to fit your needs. Check out the Reporting addons page of Nagios Exchange for the addons specific to providing more extensive reporting capability.
Specifically, you might want to look at Nagios Email Reporter.