All android phones do the stream quality downgrade on 3G. At least all the ones running the google youtube app. The mobile version of youtube (through the app) also only has 2 stream sizes, low and high. If you're on 3G it defaults to the low stream, this can be hacked, but by default it is the low stream.
I hate arguing on the screen quality issue, because it really is a losing battle on both sides. I think the "pixelation" that WorldofJohnboy is talking about is the smaller pixel density inherent in (S)AMOLED tech. It uses a different subpixel layout with one less subpixel (Yes, in the screen itself, each individual pixel isn't a "single" unit...). In standard "stripe" LCD pixel layouts, each pixel has 3 subpixels (red, green and blue). In the Pentile layout that all commercial OLED tech uses, each pixel has only 2 subpixels (each one has a green, but each alternating pixel has either an enlarged red, or an enlarged blue). This is to extend the life of OLED displays, as the materials are constantly degrading with use with green having a much slower decay rate than red or blue. What ends up happening is, colors that have red with very little blue, or blue with very little red, end up looking "dithered" with visible dark spots in between each pixel. Incidentally this is why the colors are so blown out, they drive reds higher to make that less apparent, with blues being driven a little bit higher, but not as high as reds (it's harder to see the blue-black gap than the red-black). All that assumes that you know what to look for, and are physically capable of perceiving them. But it does essentially quarter the resolution for blues/reds...
Does that matter? Probably not to most people (does to me, but I'm a nerd). The real issue I have is the overdriven colors, it just looks unreal to me. It's the same thing as when I buy a new HDTV/monitor. I take great care to break it in and professionally calibrate my screen and get it as close to reference as possible, whereas my sister (and sadly, most people) will just throw it into "vivid" mode if they touch the controls at all...
I have no idea why I wrote all that tl;dr. My geekness just esplodied into the text field... I have no life...