Yep, it's just about impossible to avoid harsh shadows with the built-in flash, although you can diffuse it a little so it's not so much of a point source.
If there isn't enough ambient light, you really need an external flashgun and to bounce the flash and/or use a diffuser like a Stofen or one of the weird looking Gary Fong things or a clone. Bouncing or diffusing the flash reduces the range considerably, so a powerful flashgun is best.
