Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU iPhone OS 3_0 like Mac OS X; en-us) AppleWebKit/528.18 (KHTML, like Gecko) Version/3.1.1 Mobile/7A280f Safari/525.20)
The new iPhone may output 720p (and possibly record it) but the screen itself will not change at all. Not only would it be a usability nightmare, it would mess up every single app.
Apple didn't initially include 3G due to battery life concerns. Therefore, you aren't going to see 720p output. It may not even be possible. Don't forget that we're talking about a 400Mhz CPU and about 64MB of RAM. 480p video already drops you down to about 4 hours of battery life. 720p would probably suck it down to 2, so what's the point? I understand why people would theoretically want it, but the HD videos will take up too much space and suck too much battery life to happen in the next few years.