There is also more to IQ than just jpeg default settings resolution. D700 default jpegs are rather low contrast, low sharpening while K20D default is high contrast/high sharpening.
K20D default jpegs may look better for details but if you look at other characteristics (like noise or, in my illustration bellow, DR), the D700 is not too shabby... for a FF!
Trying to determine which camera has better IQ by looking at default jpegs is a waste of time IMO: you can prove everything and the opposite depending on what you look at.
The point I am trying to make is that the differences you're seeing in details are no more valid than the one we are seeing in DR: in raw, both cameras are capable of much better results in each department.