So why 800 x 480 rather than 854 x 480?

It's not HTC's reasoning, it is a common resolution being pumped out by manufacturers of displays.

 

Off-topic question: would a higher resolution on the iphone affect the apps?

 

Both resolutions are considered WVGA. I'm guessing the 800x480 is more popular because it has the vertical resolution of VGA (640x480) and the horizontal resolution of SVGA (800x600).

http://upload.wikimedia.org/wikipedia/en/e/e5/Vector_Video_Standards2.svg

 

Here are my guesses for why they chose this particular resolution:

1) The squarish 800x480 is more like the iPhone screen and provides similar benefits such as: a) it provides more "real estate" in profile mode. This obviously helps with typing accuracy for the profile keyboard; b) You can also see more of a web-page in profile mode, compared to a similar 3.7" 854x480.

2) HTC may have chosen the 800x480 because it's the same resolution they used for the HD2 (although smaller).

3) AMOLED is a relatively new technological implementation and likely do not have a bounty of suppliers. The Samsung Omnia II is the only other AMOLED phone that boasts the big 3.7" size and is the same resolution: 800 x 480. When the Omnia II came out, it was the largest AMOLED screen available on a phone. That is, until the N1 came out, sharing the same screen. There are two prominent OLED/AMOLED suppliers: Samsung being one, and TPO being the other. And by the time the N1 was manufactured, there were only two AMOLED suppliers mass producing AMOLEDs of 3.x" size: Samsung Mobile Displays and TPO. Only Samsung has 4.x" >>HD<< AMOLED even in planning for Mobile phones.

Note: Checked... The AMOLED is by SMD. They only had one 3.7" in mass production at the time of the N1's build @ 800x480. In fact, it's the same exact screen in the Omnia II released previously to the N1.

 

I vote for #3!