I've been saying it since launch and Capcom are definitely not the only devs to make this mistake. Dead Rising is not unplayable at 480i. It is hard to read the text, and therefore Capcom have made a huge error, but to say it is unplayable is just fear-mongering. A lot of EA games are, IMO, totally unplayable because of the small size. The menus on Tiger Woods 06 are completely unreadable. Fight Night, Madden, Fifa, even Burnout to some extent...all of them are unreadable on an SDTV. Even 1st party games get it wrong - the text in Amped 3 is far too small. A lot of devs do it well though - COD2 and other Activision games have well-scaled text that looks perfectly fine in any resolution. Namco got it perfect with Ridge Racer 6 as well
Microsoft and the publishers should accomodate for both HD and SD. I think the majority of 360 owners will have a HDTV either now or in the future...but that still leaves a large part of the audience with SDTVs.