This Ars Tchnica analysis of Nexus One's display capabilities is much too technical for my level of enterprize, but goes quite the length to explain why things are the way they ended up.
http://static.arstechnica.com/gadgets/fig1.jpg
"[...] A lot of Nexus One buyers (myself included) based their purchasing decision at least in part on the amazing-sounding screen resolution, and many of us were disappointed in the lack of crispness of text. [...] In two recent comparisons of the Nexus One's famed AMOLED screen to the iPhone's LCD screen, [...] the Google phone's display actually came out the loser. [...] despite the fact that both Google and HTC have repeatedly claimed that the Nexus One's display is 480x800 pixels in size (252 pixels per inch), the actual effective screen resolution may be substantially less than that, depending on how you count the pixels."
http://arstechnica.com/gadgets/news/2010/03/secrets-of-the-nexus-ones-screen-science-color-and-hacks.ars/