I thought it was 3.5"... at 320x240, that's 114 ppi.
Anyway, Tim did say that it had anti-aliasing. That will help, but it'll still look mediocre compared to modern smartphone platforms, which are pushing over 300 ppi, and also have anti-aliasing. And, even with poor eyesight, higher resolution can still help.
CPU performance depends on how aggressively they clocked the CPU - a 400 MHz ARM9 as Tim mentioned could do quite decently, although the way he phrased it, it may not actually ever run at 400 MHz (just like how the 50g never actually runs at 203 MHz)
In any case, 39gII DESTROYS the 50g on performance, despite being clocked slower and having the same generation CPU (66 MHz ARM926EJ-S instead of the 75 MHz ARM920T (just as fast for most code) of the 50g). Interestingly, the 39gII's SoC is capable of 320 MHz. Could be some fun overclocking to be had there.
Yes, you need to have enough CPU to actually push those pixels - case in point, the dog-slow TI-84+CSE, with the SAME CPU as its predecessors, pushing TWO HUNDRED TIMES the data per frame (well, add in 8 or so bits per frame for the monochrome 84+'s annunciators) - but I really don't think that'll be a problem with the Prime at all.