You're right that Washington was originally signed for 1.2 million (or as you say, approx 550k per year less than Woodhead), BUT....he was quickly cut at that salary and brought back for about 700-800k, which is his salary for the year; not 1.2 million as you stated.
In the long run, yes we're missing Woodhead--but Vereen and Washington both came on the cheap. We've seen many instances where Belichick simply doesn't agree with the level of compensation/overall value, even if that is slightly smaller.
Just look at the fact that he very well could've retained Welker by coming up ONE lousy million from 2/10 to 2/11. With the first year guarantees being significantly higher, that one million dollar raise surely would've been enough to keep Welker from taking the 2/12 deal with DEN, which had way less year one guaranteed money. That is just one example of Belichick not agreeing with the "value" of another team's offer.