Most modern TFT displays have a native resolution of 1280x1024.
I've never had the chance of seeing a lower-resolution game (320x240/640x480) on such a display.
I'm sure it depends on the model, but in general, how noticable is interpolation in full-screen mode? How bad is it?
well....at least it looks good on my 12" laptop screen :)
I think it depends on how the screen interpolates the image, I think some of screens just produces ugly double (and triple, etc.) pixels (especially when the screen resolution is not a mulyiple of the displayed resolution, there'll be alternative single, double, etc. pixels which will be VERY ugly), some of the others added filters so the screen would be blurried out when it's not displaying in the set native resolution (IMO looks better then the former method, but still it cant be compared to CRT screens), and that's the reason I dislike LCD screens in general.
Actually I'm not very familiar with this kind of thing, the above are just experience I had after using several laptops, displaying 800x600 on a 1024x768 screen.
But if your screen is 1280x1024, I think it shouldn't be really bad displaying 320x240 or 640x480, for at least the horizontal res. 1024 is a multiple of 320 or 640.