Theoretically, yes, but not in practice. First of all, you can't make letters smaller because they become unreradable, even if all pixels are in place. Secondly, when you make letters large enough to be readable by normal humans from a standard 30-50cm distance, they look pretty smooth in both 800x480 and 640x360 resolutions. Try it for yourself.

Not really. Even with 5800, you can no longer see individual pixels, so it does not look much grainier. Now, if it had a physically bigger screen, it would obviously require more resolution.