And it's already a noticible step down from the TV screen output. A quarter of that resolution will really impact on what you can see/read on the screen far more than the PPI difference will make.

PPI of a 100" 1080p TV is much lower than a 32" 1080p TV. However resolution is the same and so the content translates fine across either size.

32" 480p TV has nowhere near the clarity however of a 32" 1080p screen. This is the kind of difference we are talking, just look at all the complaints about games such as Dead Rising on the XB 360 when people were trying to play them on their SD screens but the HUD/Game Text was no good for this.

Does this means that the new 3DS can be used as an extra screen like having multiple pads? Would be great for local co-op.

PPI differences are the main cause of not being able to read the text (it is scaled to the point that it is blurry.) If I had  - say - a 720p image (remember most WIi U games are rendered at 720p, not 1080p) on a 32" telvesion and a 100' television you'll notice the same blurry image that prevents you from reading the text.  A 480p image on a Wii U gamepad is going to be less blurry than a 720p image on a 100 inch television. 

Resolution isn't something special in itself. Pixel density is the important factor here. Now if your argument was that less could fit on the screen because of the difference in scaling (aspect ratio) between the resolutions of the screens, then yeah I'd accept that. But your argument was entirely about image quality.

And duh, because the 480p 32" tv has a lower PPI than the 1080p tv. 

It's HD. 

No it's not

Find me a source which supports your claim. 

http://wiiudaily.com/wii-u-gamepad/

• 6.2 inch touch screen with 854 x 480 resolution with stylus support

Looks HD.

Therefore, HD.

Fairly pointless rumor.

That's not how it works, the Wii U gamepad has a 480p resolution, that is SD, not HD.

Aspect ratio doesn't determin resolution. So seeing a 16:9 image isn't auto HD. That's 16:9 SD res.