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To quickly answer your question... No, the iPhone's display resolution is 480 x 320... It ends up scaling down files with an input resolution larger than 480 x 320.

There's a difference between display resolution and input resolution.

The iPhone can support H.264 in Baseline Profile up to 1.5 Mbps for 640 x 480 input resolution.

Now, this only refers to the source material... but the DISPLAY resolution of iPhone is actually 480 x 320. Note that the iPod's display resolution is 320 x 240... less than the iPhone. But both support input files that possess a larger resolution.

The reasons for this are twofold:

Zoom function on the iPhone would make pixelation obvious if the input resolution matched the display resolution. i.e. blowing up a 480 x 320 video on a 480 x 320 display will expand the source pixels to the point where they are obvious. 640 x 480 can be rescaled nicely on a 480 x 320 display without much pixelation.

By supporting a higher input resolution, uniform files can be used across multiple devices with varying output resolutions...i.e. one file for AppleTV, iPod and iPhone (in principle).