960x640 is actual IMPROPERLY design for 3.5inch screen device. its suppose 480 resolution or less for small screen.. HTC HD2 and EVO runs HD quailty, so 800x400 is accurate designed for BIG SCREEN as such 4 and 8inch.
Are you sure you understand the concept of resolution and dpi? The higher the dpi, the more details you pack within an inch. Since a normal human eye cannot resolve more details beyond 300 dpi at a foot distance, the iPhone 4 has enough details that you can resolve. It is a perfect balance - more dpi won't help because you wouldn't be able to resolve any more details unless you use a magnifying glass.
800x400 for 4" display is pretty a nice resolution but nowhere as sharp or detailed as iPhone's 960x640 in a 3.5 display. Ideally, all displays should have 300 dpi and iPhone is the first commercial phone to reach that dpi. Pack any more dpi and it becomes truly s a waste of efficiency.
To have 300 dpi on a 17" monitor would require several gigabytes of video RAM and thousands of cores but we will get there, hopefully in 5 years. That would definitely make publishing so MUCH easier - what you see is truly what you get on print. That would make me VERY happy! BTW, we HAVE the technology to display extremely high DPI LCD, as high as 2000 dpi LCD, the problem is that we cannot scale it well for large monitors because of today's graphics card limitations.