You're ignoring the pixel density, though. Half the resolution, but a screen many times smaller in physical dimensions than the monitor that you are comparing it to.
Plenty of Windows Mobile devices had full on 640x480 screens years before the release of the iPhone. Nothing about the iPhone's resolution was revolutionary at the time. Hell, for a long time the apple cult was touting how their low resolution was really a benefit, saying that because it was easier on the GPU it led to better graphics albeit at a lower resolution.