We know that the preferred resolution is 800x480, which today is considered on the high end but within a few months will be closer to the norm in smartphones. This raises the question: what resolutions will WP7 support say in 12 months or 24 months out? Surely 800x480 won't be the bees-knees in two years from now. Heck, the 4th generation iPhone ("iPhone HD") is dropping this summer with an expected resolution of 960x640.
We're pretty positive that Microsoft have some sort of upscaling plan in the works and the first hint of this may have just been found from one of the recent WP7 ROM dumps.
Specifically mention of a DPI 262 (DPI= dots per inch). Historically, Windows Mobile has supported DPI 192, 120 and 96. Windows Phone 7 supports 96, 131, 192, 262 and according to Da_G, WP7 resolution is scalable to just about anything.
Now DPI isn't resolution, but rather effects how dense the image is--the larger the screen, the less dense the pixels, you up those and your screen image is smoother looking. With DPI 262, Windows Phone 7 can (a) look better on current screens if enabled (b) work on larger screens e.g. 5" tablets and up. (c) be easier to read, think fonts/text and smoothness.
Hopefully this a positive sign of things to come.
[via XDA forums]