I would say there are a few reasons as to why you aren't seeing a difference. Major factor is how far you sit from the screen. The farther you sit away the less detail you can see. At a Bar, a 25in TV tube can look like HD from far away, but as you get closer it looks like crap. Same goes if you stick your nose on the screen you can see each pixel. As you go back to your couch you don't see each pixel. I sit 16ft from an 110in 720p projector.
One other factor is that your TV is 1080i. It doesn't matter what you throw at it (480i/p, 720p, or 1080i)... what your eyes will always see is 1080i. Your TV has a scaler in it that changes the source (bluray or DVD or CableTV) to its Native resolution. You may not see any difference because the Bluray is has a resolution of 1080p, you set it to 480P, and you TV bumps it back up to 1080i. Now yes you will loose some quality doing this but you are sitting so far away that your eyes can't see the difference. You didn't mention if you were using HDMI/DVI cables or Component, but if you are using analog, most likely you are loosing some sharpness from the Digital to analog and then analog to Digital conversion to the point you can't see the artifacts being created from all that resolution scaling.
Best thing to do is set the player to 1080i, use a digital cable DVI/HDMI, and be done with it. Yeah you may not notice anything from where you are sitting, but if anyone is closer... they will. Also, you might want to get a Bluray calibration disk to make sure it's all good. Calibrating a TV will make way more of an impact on picture quality than resolution does. IMHO
One other factor is that your TV is 1080i. It doesn't matter what you throw at it (480i/p, 720p, or 1080i)... what your eyes will always see is 1080i. Your TV has a scaler in it that changes the source (bluray or DVD or CableTV) to its Native resolution. You may not see any difference because the Bluray is has a resolution of 1080p, you set it to 480P, and you TV bumps it back up to 1080i. Now yes you will loose some quality doing this but you are sitting so far away that your eyes can't see the difference. You didn't mention if you were using HDMI/DVI cables or Component, but if you are using analog, most likely you are loosing some sharpness from the Digital to analog and then analog to Digital conversion to the point you can't see the artifacts being created from all that resolution scaling.
Best thing to do is set the player to 1080i, use a digital cable DVI/HDMI, and be done with it. Yeah you may not notice anything from where you are sitting, but if anyone is closer... they will. Also, you might want to get a Bluray calibration disk to make sure it's all good. Calibrating a TV will make way more of an impact on picture quality than resolution does. IMHO