I get the feeling HD support was an afterthought just so "Zune HD" would make sense. In my opinion adding HD support is pointless for a 480x272 screen; the only useful HD feature is the ability to play on external screens.
From what I've read, the HD video support is focused on external screen viewing. Microsoft will also be selling an optional Zune docking station with an HDMI output.
I think HD also refers to the built-in HD radio receiver.
