I have a similar problem with one of my apps where I created a special version (same app different APK) for 10" Honeycomb tablets. If a 7" Honeycomb tablet (1024x600) tries to run the app the screen will get cropped and if a 7" tablet with 1280x720 runs it the widgets will be difficult to use. The layout for small, normal and large will work fine on 7" screens even with 1280x720 resolution. So there needs to be a way to handle an overlap. I agree this was all not thought out very well.
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