Actually it is entirely possible for $99 tablet to have 720p playback. I have owned one, which is a clone tablet made in China. In fact, there are several such tablets in China. The spec is not high, just a 800MHz CPU and a mali video chipset. And it plays every MKV, MP4 etc smoothly, due to video hardware acceleration. It is just sad that Honeycomb and Tegra2, despite having better spec, have not been optimized for video playback. Let's hope HC3.2 finally does that.
Of course you won't really see the resolution of 720p on such a screen, but it can play the content smoothly, which beats those more expensive tablet which cannot. And it is completely due to hardware acceleration because if you turn that off, the video is just as choppy.