I guess my point was lost in the VHS resolution debate. I'll frame my experience a little better. I'm 52. Betamax was the first video tape format I had a chance to experience, and although it had more lines of resolution it lost out to VHS tape because recording lengths were longer on VHS. You could fit a 2-hour movie on one VHS tape. The porn industry adopted VHS because the equipment was less expensive. TVs could do a little better with broadcast NTSC TV, and we (society in general) were happy to watch it. DVD was a little better, and much more reliable, but looked pretty much the same on those old analog TVs. It wasn't until digital TVs showed up (2006ish) that higher resolutions, progressive scan, and flat screens showed us there was something better. Now 1280 x 720 or 1920 x 1080 is what we enjoy on that 30" or larger HDTV.
It's all irrelivant. The Touch has a 480 x 320 screen, 3.5" diagonally. It doesn't matter if you like more pixels. It doesn't matter if you throw a 720p movie on it and it plays, because all you'll see is 480 x 320 in 3.5" diagonally. If you think it looks horrible, then buy the blu-ray version of the movie and watch on an HDTV.