WinMo 6.x supported 4 Logical DPIs (note that logical DPI is different from physical DPI, which is the bit that varies with each LCD panel/resolution)
96, 128, 131, 192
Note that a 5 inch panel might be operating at the same logical DPI as a 4 inch panel (lets say 192), but the physical DPI would be less on the 5 inch panel (larger physical pixel size)
If you were to change the logical DPI on a 4 inch screen from 192 to 262, while leaving the physical DPI the same (screen size/resolution does not change) - all on-screen elements would appear larger - more pixels would be used to draw each icon, scrollbar, etc.
Windows Phone 7 is showing 4 logical DPI's right now too:
96, 131, 192, 262
Just that we've lost 128 and picked up 262