I have a Panasonic PT-AE3000U front projector connected to my Xbox 360 over HDMI. Even though 1080p is a resolution option in the Settings, so far I have left it at 720p because the menus look the sharpest in 720p (changing to 1080i or 1080p makes the menus slightly less sharp). Also, all of the blockbuster Xbox 360 games are rendered in 720p and they look best when output to the projector at 720p rather than 1080i/p. Apparently my projector scales to 1080p better than the Xbox 360 does.
However, now ZuneHD is available and claims to deliver movie content up to 1080p over the HDMI output of the 360.
I'm conflicted: do I set the output to 1080p and live with less pristine menus and games in order to watch movies in their best possible presentation, or leave the output at 720p, which is still true HD even for movies, and enjoy games at their best "the way the developers intended them to be seen".
I did watch "The Hangover" on ZuneHD a 720p and it looked pretty good. However I got involved in the movie and forgot to switch to 1080p and see if it looked any better.
What are other people doing with respect to this issue?