One of the problems that has consistently plagued the dinosaur/bird debate is the difficulty of finding hard evidence. For instance, while it's easy enough to dig up fossilized dinosaur bones, it's much harder to find an imprint of a dino's hide (since soft tissues degrade very quickly). This makes it a challenge to prove what the skin of any dinosaur looked like, much less whether it had evolved primitive feathers.
Sinosauropteryx Prima
That's why the discovery, in 2001 in northeastern China, of the incredibly well-preserved fossil of an indubitably feathered dinosaur was such big news. This duck-sized dino, dubbed Sinosauropteryx prima, has been preserved in such exceptional detail that paleontologists can clearly make out its small, tufted "proto-feathers." It's estimated that Sinosauropteryx lived about 130 million years ago; this particular specimen was probably a juvenile (as evidenced by its large head compared to the rest of its body).
Feathers and Flight
Just because Sinosauropteryx had primitive feathers doesn't mean it was capable of flight. Dinosaurs didn't evolve large, aerodynamic feathers overnight; this feature slowly developed (over tens of millions of years) as a means of insulation. At a certain crucial point, the insulating feathers grew large enough, on some lucky dino species, to enable it to take to the skies. In other words, nature didn't evolve feathers specifically for flight; the ability to fly was an unexpected by-product of this adaptation.
By the way, you might be amused to learn that a close relative of Sinosauropteryx was Velociraptor--which may also have sported feathers. It's an open question whether Steven Spielberg would have made raptors the vicious hitmen of Jurassic Park if he'd known that they looked like giant chickens!
