It's pretty simple actually: the Zune HD can play back HD-resolution content. Bam. It doesn't matter if the screen isn't 1280 x 720 - what kind of short-bus person would think a 3.3 inch 720p screen would make sense is beyond me - what matters is the kind of content it can handle. Thanks to whatever GPU it's using (likely the Nvidia Tegra), it can handle high-resolution content unlike any other device on the market today...including the iPod Touch.
You're right in that specs don't make a device automatically great, but this is definitely a quantum leap beyond the previous generation Zune products - and with the Zune software being approximately 286% better than iTunes, it's a win-win.
We'll see...