As much as I think a higher resolution portable screen would be nice, I think focusing on performance would be the better decision.

720 at 7 inches is fine. Also better battery life.

Nothing prevents them from going for a 1080p screen and render the game in 720p or around that resolution when in handheld mode, and then use the same upscaling tech they’ll use in docked mode to achieve 4K, but this time to reach the 1080p resolution of the handheld screen, saving processing power to reach higher performance while still looking crisper than 720p.

Nothing prevented them from launching at 16nm FinFET originally, but they still cheaped out because they are Nintendo.
Also anything that adds performance profiles makes dev more complicated, compared to just focusing on 2 profiles as now.

I do think your idea has merit, although it ignores that DLSS isn't just a hardware feature, but requires games be built around it.
And that probably isn't realistic for every game that comes out on Switch, so saying native resolution doesn't matter is misguided.
That said, plenty of games don't reach 720p in handheld mode, so it seems plausible devs could use DLSS to upscale to 720p output,
(knowing they would still need to use standard upscaling for older Switch models which are and will be the vast majority of platform)
That could allow those more demanding games to achieve much better image quality at the current 720p resolution, along with OLED.

As Modern Vintage Gamer has said, and he's actually Switch developer, going to a 1080p screen would require a patch for all existing Switch games because no current game goes above 720p in portable mode. Not only that, most games don't even reach 720p as many others in the thread have stated.

I'd definitely take a 720p screen with better performance. I've never had a problem with the Switch's screen and in fact I've always thought it looked nice and crisp. Even when I use my Galaxy S9 all day with a 1440p resolution in a smaller screen the the Switch, I didn't feel like I was missing out on much of anything playing on the 720p screen. Also it saves battery which I'd infinitely rather have that then a higher res screen.

A 720p display would be enough considering the size of the screen, going 1080p wouldn't even be really noticeable -or at all - for most people.

So my take is: stay on 720p and focus on delivering the exact same performance than the docked counterpart, just with a smaller resolution. Also, Nintendo should ensure to try and make dips below 720p a very rare occurrence, as that's much more visually disturbing than being at 720p in general for the handheld part.

Nvidia had a lot of stock leftover and gave Nintendo a good deal. Nvidia needed the Nintendo deal.

720/60 for a handheld should be fine. The screen this size doesn't really need higher resolution. 1080/60 for docked would be preferable if possible. But in the end, such performance targets can even be reached with the current hardware as it is. The resolution and performance is always up to the devs to optimise the game to meet such requirements. More powerful hardware should make it easier, but I don't really think that with current tech it would be possible to go anywhere beyond this in Switch form factor.

No that wouldn't be true; remember Nintendo is in control of the OS. My speculation was that a Switch Pro SoC upgrade would be more than enough to run current Switch games' docked modes as its portable mode. This wouldn't require any developer intervention: Nintendo could just set a simple flag/trick at the OS level, and tell the Switch games that they are "running docked" while portable on Switch Pro. The games wouldn't know the difference.

Then, for developers that want to and newer games, they could add a third profile for running on Switch Pro docked that could take advantage of the extra power for 4K DLSS and maybe higher resolutions textures, higher anisotropic filtering level, etc.