PS3 1080i Problems

When I my PS3 is set to 1080i, two things happen. I get this weird ghosting/burn-in effect where images leave sort of a shadow on the screen after they have left (particularly noticeable in the XMB menu) and there are pairs of parallel lines running vertically across the screen that can be seen from closer than 5'. This problem appears both in the menu and in blu-ray playback. When I change the resolution to 720p, everything looks peachy keen. I'm outputting to a dell W4200 plasma with an HDMI -> DVI cable that accepts 720p and 1080i. Does anyone have any idea what is going on here?

Why would this only occur in one resolution and with one device? 1080i from my DCT6412 cable box looks fantastic and does not have this problem.

If I turn off 1080i on my PS3, will blu-ray output in 720p?

Like I said in my second post, 1080i from my cable box over component works perfectly on my set. Could it be an issue with the DVI port on my TV?

Sorry for the confusion, but it is a W4200HD (1024x768). I can't find anything in the user manual or on the net that would suggest the DVI/HDMI port cannot accept 1080i, but the thought has crossed my mind. For TV's that cannot accept a resolution such as 1080i over DVI, do they display any image at all or would the image be distorted like mine?

I also have just a general question about my set. Since it is neither native 1080i or 720p, what resolution should I be having my devices output to the set for best results?