Quite a few people store their videos locally on the device rather than stream it. The Exynos and Tegra 3 Android devices have no problem playing any 1080p content and OMAP4 devices can handle most content just fine too.
I don't doubt its capability, but the screen isn't 1080p. You're losing quality anyway so I'd rather downgrade the video to 720p than carry around full 1080p videos.
how would this work in the NYC subway 50 feet underground?
or in a corner of the house with poor wifi reception due to walls or lots of interference?
I throw up a queue of videos I'd like to watch and save the transcoded files to my mobile device. Once I'm done with the files I throw away the transcoded files and my full quality 1080p still lives on my NAS box.