The iPhone 3GS was the current iPhone when 3DS was unveiled. The screen of Apple's device wasn't a much better resolution, compared to 3DS.
"The display on the iPhone 3GS also is 3.5 inches but is only 320x480 at 163 ppi with a 200:1 contrast ratio, noticeably lower resolution than the 960x640 at 326 ppi display on the iPhone 4."
http://www.everymac.com/systems/apple/iphone/iphone-faq/differences-between-iphone-4-iphone-3gs.html
At this point, 3DS had finalized hardware and was being shown off at E3 in 2010, prior to launching early 2011.
Shortly after, Apple changed the smartphone/mobile device game, with a new "retina'' screen resolution, unveiling and launching the iPhone 4.
When you look at 3DS and its lower resolution screen, through the window of what was available (in 2010/2011), the 3DS wasn't as hideous - the problem is that gaming hardware is typically around for 4-8 years and the world of tech evolves past concrete features, of said hardware.
I don't think the next Nintendo handheld, will be as behind in screen tech, as others suggest. It won't be top of the line, but it won't be 420p.