Going by the Apple website, the resolution of the iPhone 4 is 960 x 640, so it's somewhere in between standard and 720p for playing video on. However, I do agree that a high resolution does not always mean better.
A few years ago, I bought a Creative Zen Vision media player with a 3.5" 640x480 screen, as I went for the highest resolution player with a small screen that I could find at the time. A year later, I bought a GPS, which has a 4.3" 480x234 display. After noticing the "WinCE 5.0" sticker at the botton, I had a go at breaking out of the GPS software and landed in the Windows CE GUI (looks a bit like a cut down version of Windows XP). I loaded HPC player and a few videos on an SD card to try for curiosity. Despite the much lower resolution display, I was shocked at how much better the colour and contrast looked compared to the Zen and ended up not using the Zen since then. The GPS ended up being a better unit as it had an SD slot, FM transmission and obviously a Satnav, all which the Zen didn't have and also cost me half the price of the Zen!