There are some popular myths that gets repeated over and over again, based more on market hype and misinformed feeling, rather than actual rational thought. Hence the following rant.
The upscaling DVD feature (that people so often list as a must have or highly desirable function) is for most people a complete waste of time, or at worst, a negative. LCD/Plasma TV's have a fixed number of pixels, otherwise known as native resolution. It doesn't matter what input resolution they receive, it must be upscaled to the native resolution prior to display.
When you ask your TV to tell you what scale the input source is (eg: 480i/p, or 576i/p if you are in New Zealand like me) that is all it is telling you: What the input scale is. Upscaling the image prior to input into the TV does not promise a better picture, unless (1) Your TV has a crap scaler (2) The source device has a better scaler than your TV. You also need to consider that very few TV's have true 720/1080 native resolution, meaning that if the TV receives an upscaled 720/1080 image, it will still need to scale it up/down to it's true native resolution. This means the picture you are watching is actually being scaled multiple-times, and in my opinion, that is likely to result in a poorer picture, rather than a better one. Although some scalers are very advanced (I understand the scaler that comes with XBMC is very good and claimed to be as good or better than what most TV's can do) we should face the facts that what is most important is the level of detail in the source material. If you really want High Def, get HD-DVD or Blu-Ray. Otherwise, accept that what you are watching is DVD, and assuming your TV is good at what it does, it will be making the best of the input signal you are feeding it. You should also consider the concept of "work distribution". Since games machines are often pushed beyond breaking point in terms of CPU requirements, why would we further burden the system with upscaling demands when your TV does it anyway? This is why for most 360 owners, 720p output is the best choice, especially given nearly all games support that resolution natively.
Next point is the obsession with pixel-count, as if that was the most important factor regarding picture quality. Not even close. The most important factor regarding picture quality is colour depth and accuracy. That is why a quality 42 inch Plasma (which is limited to a maximum resolution of 1024 * 768) will typically hand an equivalent LCD TV with much higher resolution it's a*se on a plate. In fact, for graphic's professionals, the science of "colour quantization" (ie scaling a image down/up in terms of it's colour depth) is regarded as a critical technology to producing the best picture possible. This was well known back in the old days when a game developer had to choose between writing a PC VGA game that ran at 320*200 at 256 colours, vs 640*400 at 16 colours. Even disregarding performance benefits (of a lower resolution) 320*200 was nearly always the best choice (depending on the style of game) because it "looked" better. Bottom line, the technology surrounding colour is more important than resolution. Technology professionals know that, but the features surrounding the technology cannot be easily conveyed by a set of simple numbers, so it's much harder to market than pixel counts to the fickle masses. (BTW 1024*768 4:3 which is not wide-screen 16:9. The Wide-screen aspect is achieved by making the pixels egg shaped rather than perfectly round)
To be honest, I think it would be great if you could choose to run 360 games at native 480p, if for no other reason than allow the customer to enjoy a game that has a truly smooth frame-rate and less load times (less data to load for lower res bitmaps). Specifically, I suspect that as beautiful as Oblivion looks, I might enjoy the game more if it ran smooth and fast. In other words, let the consumer decide what is more important, the latest uber-shading technology, or a game that is fast and responsive. Unfortunately, this is marketing suicide, because M$ and $ony have spent a small fortune selling the next gen based on hi def pixel counts, even though their new hardware actually struggles to move this amount of data around and retain optimal frame-rates.
Lastly, about the new 360, it seems like step by step, the machine is looking more like a PS3 (spec wise). However, the horse has already bolted, and they can't address the fundamental issue that stops the 360 being a thorough-bred Hi Def system. They chose to go with DVD as their media delivery mechanism, and in terms of games, that is what they are stuck with, unless they decide to launch the Xbox 720, which they may do, once the war between HD DVD and Blu Ray is over. That's going to take a long time, because both these formats are fighting the wrong enemy (although to $ony's credit, they decided to hang their balls out and truly back one). DVD remains king, and will do for quite some time to come. Unlike the VHS to DVD transition, neither of the next gen formats offer the same step up in terms of features and performance that the last transition did (anyone remember having to rewind your tapes before taking them back to the video-store?) DVD is cheap as chips, and delivers good quality picture and excellent surround sound capabilities. The fact that it's easy to copy, and can also be used to record TV/Videos in a cost effective fashion, leaves me with the inevitable conclusion that consumers are not going to get a sufficient "hard-on" for the new formats in order to start opening their wallets on mass for a quite a few years yet.