My DLP is 720p. However, I put it on 720p only for standard-def and ABC, ESPN, ESPN2, and FOX. For the channels that are native 1080i, I go ahead and output in that. I like to go ahead and give my TV the best possible feed for the 1080i sources and let it sort it out. I find it looks better. I didn't originally intend to do this, but when comparing it was what I clearly determined.
You'll probably find your TV has its own preferences.
-DirecTiVo HD HR10-250 - Born May 3, 2006
-DirecTiVo R10 - Born May 2005
-2 HUGHES DirecTiVo - GXCEB0T - Born: August 29, 2001 & JAN 11 2002
-PHILIPS TiVo -14 Hour - HDR112 - Born: September 2000