Where do I find if my TV accepts 720p? Your argument that being so close to the TV making the difference seem negligible seems plausible. However, the difference between HD cable and regular cable is astounding to say the least. Don't know why the channel contrast is so great, but it is so much more noticeable than on DVD. In fact, my regular DVD of Star Wars: Revenge of the Sith looks about the same as the HD they air.

Your tv accepts 720p. Not only accepts it, but that is the native resolution of it. You bought it too long ago for it to be a native 1080p set, so I guarantee it's 720p (768p if you want to be super technical about it). The 360's dashboard absolutely has a 720p setting available.

The difference between SD and HD cable is so noticeable because your SD channels likely aren't even digital and probably have a ton of noise and artifacts. The jump from DVD at 480 to HD at 720p/1080i/p is noticeable too, but sometimes not as much because it is a real clean 480 lines of resolution on the DVD. Sitting 10 feet away doesn't help matters, as far as distinguishing the differences, which for HD is all about the detail of the picture. Compare some stuff while sitting a few feet away and you should see how big the difference really can be.

I found the 720p setting, and I think I like 1080i better. Don't know if it downscaled it or not.

In terms of scenes to compare, I did so and noticed a difference. Ironically, the scene in King Kong that let me know my HD was indeed giving better picture was the scene entitled "Beautiful," where Kong takes Ann to his lair and they watch the sunset. It was was the scene says, no more questions from me. Going a distance from the set helps make it noticeable as well.
So...is the Matrix Trilogy worth getting? :D
FWIW, I am sure that until that set came out for HD-DVD, the best one out there was the one they chose to sell with the 360 package (Kong of course).

Also, if you're using a cable box (which is sounds like you are), keep in mind that your cable is being compressed. SD cable is probably mpeg-2. That's why a lot of people have said a clean analog cable signal is likely better than the signal from a cable box (analog cable has no compression in the mix).

Oh, also, the back of my TV does indeed have 1080i listed as an option.

That just means it will accept a 1080i signal and downconvert it to 720p (768p to be technical) as it can only display things in it's native resolution.

But buy all means use which ever setting looks better to you. On my TV I've noticed that my HD cable and my upconverted DVDs look better in 720p vs. 1080i, but I've seen others post on AVS that they think 1080i looks better on this exact set, so it's in the eye/mind of the beholder.

FWIW, and this isn't really a 360 HD add on question as much as HD, I seem to notice that made for TV programs (The Sopranos, Rome, any ball game, and especially Planet Earth) look better in HD than say a movie that played in the theater and then is showing on a cable channel that is in HD. Make sense? Just curious.

Cable and satellite HD material is compressed, for starters. Unless you watch your HD tv stuff via an OTA antenna, you aren't getting the full bandwidth. Compare something like the Sopranos on cable or satellite with the HD-DVD/Blu-ray version and you will see the difference. On top of that, there is also a difference between material shot on video versus stuff shot on film. Material shot on video often looks a bit cleaner. That is why most of the programming on Discovery HD looks so incredible, even if you're watching a compressed cable/sat version.