It looks like Windows Phone 7 (WP7) devices will soon be getting different resolutions, but they will still be limited to a list pre-defined by Microsoft. While Microsoft has taken a lot of measures to ensure that the WP7 ecosystem is consistent, better resolutions will help sell more WP7 devices. Fortunately, the XAML model seems to scale up very well, and I do not think that larger resolutions will cause applications to look bad.
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Justin James is the Lead Architect for Conigent.