It is outputting at 1080p but being downscaled to 1366x768.
I would highly recommend keeping it that way, as 720p is actually 1280x720 meaning it's upscaled to 1366x768 on your TV. Downscaling is better than upscaling. I always have my 23" 720p set outputted at 1080i, since everything looks much sharper and cleaner than 720p. Only times I set it to 720p is with some (upconverted) DVD's, since 1080i gets some bad interlacing artifacts. That's only with DVD's though (from my own experiences).
I would highly recommend keeping it that way, as 720p is actually 1280x720 meaning it's upscaled to 1366x768 on your TV. Downscaling is better than upscaling. I always have my 23" 720p set outputted at 1080i, since everything looks much sharper and cleaner than 720p. Only times I set it to 720p is with some (upconverted) DVD's, since 1080i gets some bad interlacing artifacts. That's only with DVD's though (from my own experiences).