True for the space concerns, but the accelerated chipset should offset some of the concern about battery life.

I would rather play them straight and rotate on a 16gb card than go through the steps of converting all the time to a more efficient MP4 codec. Even on my Q8200 it takes longer to convert than I would like and only saves about 35% of space unless you want to lower the bit rate more and see blockies on a 800X480 display

Not as helpful as you might think as you will also need a good RAID or SSD setup or else your transcoding will still be held back by the HDD speed.

Should easily manage 720p, as my current phone the i8910 does with the same CPU/physical RAM. Generally you don't need that though, since you're watching onscreen, but it is nice to TV-Out 720p via DLNA to your PS3/a friends PS3 sometimes...