Mike - the choice of what to feed the 8700+ varies on the type of source you're giving it and how it processes different signals.
If you're talking about a satellite or cable box, it's usually at good bet to feed the projector 1080i and then let the BenQ scale it down to 720p.
If you're sending it an image from an HD-DVD player like the A1, XA1, A2 or the majority of Blu-ray players, it's best to send it 1080i.
If you're sending it an image from a "good" upconverting DVD player or an XA2 or the Samsung BDP1200, then 720p is the best choice.
To understand why these are the best choices, you need to understand how all the items above scale images.
The 8700+ can take a 720p source and display it a 1:1 pixel mapping. It displays 1080i by first down converting the image to 540p and then scales it back up to 720p. So, there is a loss of resolution and it can introduce other negative impacts like moire in the image with fine details.
The majority of HD-DVD and Blu-ray players do the exact same thing with the 1080i to 720p conversion process. The exception to this are the source devices that can scale directly from a 1080i or 1080p source. The only devices that I'm aware of right now that do this are the Reon enabled players that have recently started coming out (like the XA2 and BDP1200). The Reon can take 1080i and scale to 1080p and then go directly down to 720p.
I recently had an XA2 hooked up to the 8700 and it looked MUCH better than any other 1080i source I've had hooked up to it.
So the short answer to your question... it depends how well your source device can go from the original signal to 720p. If the original signal is greater than 720p, it all depends on if the source device scales better than the projector. For the majority of sources, they do not scale 720p+ resolutions very well, so the projector will do a better job.