Such are the woes of an undersized LCD-controller bus. The goods news is that Nokia would be hard-pressed to screw it up with the N900. 720p should look rather nice downscaled for 800x480.

An on-demand transcoding solution like mediautils is an excellent way to avoid hassle. It's even better if you've got a decent internet connection at home (1.5Mbps is recommended for best-quality playback), or a server somewhere with lots of CPU time available, as then you can access your complete collection all perfectly targeted for the tablet from anywhere with an internet connection.