I think much of it involves a different application and certainly a different market favoring convenience and access;
If your flying on a plane and want a selection of favorite movies to watch on your iPod or small laptop, this is a perfect solution. In fact, for that use, these versions aren't crappy at all. On my 2" iPod screen, I can't tell 1080 from 480; I'm not sure I can see the difference on my 15" laptop screen - but it wouldn't matter if I could;

Now when I get home on the big screen - a whole different story; But most of the available market doesn't even have big screens at home - although that's changing; but as it does I think the download resolutions will go up starting with 720p next...

ken