i have a 37 inch lcd
and i keep my on 1080i since i heard you don't really notice the difference between tha progressive and interface refresh rate until at least 42inches
my lil bro keeps his 360 on 720i cause the tv he uses doesn't support the 1080p, but it does the 1080i
the only time i have noticed a difference on my screen is when i'm using my old dvd play hooked up with the RCA (Red, White and Yellow) jacks. If it's set up for interlaced instead of progressive it looks real crappy...
I too have a 37" and i think for games 720p is better for fast moving objects etc.
From Wiki:
"In the USA, 720p is used by ABC, Fox Broadcasting Company and ESPN because the smoother image is desirable for fast-action sports telecasts, whereas 1080i is used by CBS, NBC, HBO, Showtime and Discovery HD due to the crisper picture particularly in non-moving shots."
Definitely go with 720p, you will get better colors and textures; a much better picture overall, 1080i is really just a bragging right of saying your TV has 1080 resolution. Stick with the P's ignore the I's.
