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I've seen images of text where the text appears sharper but is this necessarily true of the entire screen in that the image quality will overall be superior? Does have the highest pixel density ensure higher quality in regards to PQ in general?
I feel that higher pixel density can indeed look better. I have a 27" Dell WFP2707 and at times I regret not going for a 24" monitor because aliasing artifacts in games seem just a bit more noticeable when the pixels are physically larger. I could simply sit further away from the monitor to compensate but my desk is only so deep.
If you are comparing two displays of the same size but different resolutions then I think the choice is obvious.
I also have a 2707WFP, and I have the opposite conclusion. While it is true that visual artifacts in all sorts of content are more noticable - games, movies, etc it also means that default text is much more readable. Even today, there are many software programs that ignore Windows DPI settings, and the text is still quite large and readable on the Dell 2707WFP. As far as I know, this display has one of the largest pixel sizes of any LCD display made in the last few years.
Picture quality is a complex subject, but if all else are equal (contrast ratio, black level, etc...), then the display with the higher pixel density will be better looking, sometimes drastically so. Vector graphics (text, UI elements, etc..) will look much, *much* better on a drastically higher pixel density display (think ~250dpi+ compared to ~100dpi). Rasterized graphics (pictures, videos) will more or less look the same.
Unfortunately, monitor DPI only varies by a relatively small amount. They all fall in the 90-110 dpi range, whereas cell phone displays have blown past 200dpi and are pushing 300dpi+.