True, but it sounds like you are comparing a 10" 1024x600 screen to a 3.5" 800x480 one. Naturally, the former will look better but it would be pointless (not to mention insanely expensive) having a 3.5" 1024x600 screen. Sure it would render the font better, but to the human eye it would still look a blur.

My Xperia X1 had a 3" 800x480 screen and rendered pages with great detail, but I still found the smaller font sizes hard to read and ultimately sold it for the N900 hoping the extra .5" will help. The DPI was so high you could hardly tell the difference with anti-alising on or off, clearly your eye is starting to struggle to distinguish details at that point. A DPI any higher than that would go from hard to impossible and you cannot go much more than 4" in screen size before its too big to carry around in your day to day life.

Believe me, if it worked I would be all for it. But I found the iPod Touch far more usable for web browsing than my Xperia X1, purely because the DPI was just too high for such a small screen.