If you mean that a video with a native resolution of 800 by 480 pixels is inferior to a video with a native resolution 1280 x 720, then yes, I agree with you, but only when you display them at their native resolution. If you're trying to say that squashing a 720p video down into an 800x480 screen in real-time is more effective than taking your time and re-encoding it using a system that gives you fine control over the bitrate (such as handbrake), I can't see how that could possibly be true.

Perhaps you don't have the right software? Much (maybe most) of what I re-encode is video off the internet.

Lugging around external hard drives kind of negates the whole purpose of having a portable media player, doesn't it? I'd much prefer to squeeze more data onto my micro SD cards than be forced to juggle little hard drives around.