Let's assume that Apple soon begins selling HD (i.e., 720p) videos. How do they handle the differentiation between the small resolution screens of the iPod and the high-reolution screens of the displays people will use to watch HD? Right now, 640x480 is in-between: It's small for computers and TVs, but it's too big for any iPod to display natively.
I can think of a few alternatives:
1) Continue to sell one file, and give iPods the ability to play back HD video. I don't find this very realistic because of hardware limitations on iPods, both storage and graphics de-coding capabilities.
2) You get two files when you buy a video - one for ipods and one for TV. The drawback here is the size of the download, but this would give the best flexibility.
3) You download one large file, and then iTunes can adjust for the particular device. I include this as a possibility, but I think it is completely unrealistic. It just takes too long to encode/reencode video.
4) Sell multiple resolutions on the iTunes store, similar to today with iTunes+. If you want both, you buy both. The higher-resolution version costs more.