Last week Rene reported on the upcoming iTunes 8 release and how HD content may be included. According to a source over at Gizmodo, the iPhone handles full 1080p screen resolution "just fine".
My guess is that if this does indeed turn out to be true, we will more than likely start seeing video clips in 720p right on the iPhone. I say 720p simply because that happens to be Apple TV's native HD resolution. In my opinion, 1080p is a little too much. Actually it is complete overkill for such a small screen.
While this may sound great, there is a flip side to this coin. Processing power would be huge, which may have a negative effect on battery life. Also, if you think syncing apps takes a while now, just wait until you have to sync HD content.
We can only hope, if this is the route Apple is going to take, they have it perfected before we become their beta testers again.
Anyone remember the 2.0 firmware?