What I've noticed is that 720p programming tends to exhibit fewer compression artifacts than 1080i programming. Macroblocking occurs sporadically in 1080i content, especially during sports broadcasts when everything on screen is moving, or when they flash a high resolution graphic that flies all over the screen. With bitrates running around 17-19 Mbps (for MPEG2 video), it seems that the 12% fewer raw pixels per second in a 720p stream allow for a better video encode.
My TV is a true 720p, so that might influence my observations a bit. I don't see a difference between the 1080i channels and the 720p ones, other than the compression issues I mentioned above, and slightly more motion blur during fast scenes in 1080i content.
One thing that is true, however, is that resolution isn't everything. It is certainly possible for a lower resolution video file scaled up to look better than a higher one if they're running at the same bitrate. MPEG-2 has something to do with that, since it's not optimized for low-bitrate applications like the newer codecs AVC/H.264 and even VC-1/WMV-9. Basically, what can happen is that when the content is encoded for broadcast--and is reduced in bitrate from whatever it was recorded/filmed at--compression can degrade the image more if run at a higher resolution, since the codec is trying to take jam more information (in terms of pixels) into the same amount of space.
Think of it like trying to pack a suitcase for a permanent move. If you try to jam your entire wardrobe in there, you'd really have to mash up everything and jam it in there, and when you take the clothes out, they'd be all wrinkley and not really wearable. If you only tried to jam, say, your summer clothes, in there, you might still have to wrinkle everything up, but what you'd get would be a lot more tolerable than in the first case. The optimal situation would be to get a suitcase big enough for EVERYTHING you own, but that might not be possible, because they don't make suitcases infinitely large. (In this analogy, the clothes are your content, and the suitcase is the bandwidth limitation that broadcast imposes.)
