the 7" is 15:9 ratio (not quite widescreen ratio) and the 8" is 4:3 so they have completly different aspect ratios. The 8" is like a normal monitor where 800x600 or 1024x768 will look normal not squished.
Running the 7" lilliput at 800x600 sqeezes in 120 more pixles width wise so things are smooshed a little bit. You can only tell when looking at the desktop. Icons appear smooshed. When you have Frodoplayer running it looks perfect. I and many others run it at this resolution and it looks great.
The problem with the 7" lilliput is that it won't recognize it's native resolution (800x480) So when you set your display card to that resolution the lilliput reports it as 640x480 or some other resolution so it doesn't look it's best although the aspect ratio is correct the clarity is not it's best.
Yes that is if you have room for it. Keep in mind that a large population of this board is lilliput owners and most are happy running them at 800x600. It looks really good and crisp. Plus the 7" has the potential to run widescreen DVD's with no black bars on the top or bottom