Can the iPhone 3GS play back 720p and even 1080p source videos, perhaps even output them to an HDTV? Looks like it might, according to WeiPhone.com who claim to have gotten just such functionality working via the FileAid app.
So, while not surprising, it's important to remember that the iPhone 3GS has a 320p (48display, actually playing the files on the device -- aside from heat and battery life concerns -- would result in downscaling to such an extent that it's pretty much pointless (perhaps why Apple doesn't surface it as a feature at this point?)
, it is interesting to consider given Apple has another music event just a couple weeks away, and that Microsoft is making noise about the Zune HD outputting 720p to an external display. If Apple could flip a switch in iPhone 3.1 and enable 720p or 1080p overkill out via AV cables (better yet -- HDMI cable!) then that's one less checkbox in competitors' corner, and one more feature for iPhone and iPod touch users to enjoy.