Minecraft's description on XBLA does list "HDTV 720p" under the "Local Capabilities" details, but that generally is taken to mean the title will support up to HD 720p, and not as a requirement. In-game, a screen prompts players to "play the game in High Definition mode" for split-screen multiplayer.
Notch wasn't aware that local multiplayer wouldn't work with standard-definition TVs, he tweeted and apologized to a fan today. Port developer 4J Studios has justified the HD requirement on Twitter: 'The inventory and crafting just didn't work in splitscreen Standard Definition - it was too small to make out.'"
For those requesting refunds, you are unlikely to receive them after this statement from Microsoft "in game prompts alert players of the HD requirements for split-screen multiplayer."
Update - Microsoft are now offering refunds
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