OK, here's my setup, my problem and my temporary solution:
Westinghouse LVM42w2, Menu shows software version 1.16
PS3 20G, Software upgraded to v1.10
I first bought an HDMI-HDMI cable, and PS3 was able to detect up to 720p not 1080p, I was able to force it to1080p but got flicking images and snow flakes on edges of objects in the image
Then I read this post and bought an HDMI-DVI cable, now it was able to detect 1080p and worked fine for most of the time. But screen went dark from time to time when switching resolutions, showing a frozen dark screen with a horizontal green line (with some other color dots) across the screen, the PS3 was still running at that time and it would recover if I switch off and back on the LCD. Sine my computer has never had such problem with the LCD before, I would say it is still a software issue on PS3 side.