I was wondering if using component on the HD-DVD add-on downgrade the image on HD-DVD's. I read somewhere that it does. I don't own the VGA cable so am not sure whether the picture I get (on a 1080i set) is downgraded. Any info much appreciated.

You should be able to get full 1080i with the component cables and the HD-DVD add on. The xbox itself only displays regular dvd's at 480p while using the component. So unless you want to upconvert regular dvd's, you're all set.