Yeah, I heard the 1.8 or so update to the PS3 fixed it so Blu-ray can play at 720p, never tested it though. Since launch it did go to 480p if you only had 720p enabled. So if you'e updated the PS3 recently it should be fine. And usually there's an info button on your tv remote that will display the signal it's receiving. Not sure if the PS3 will show it itoo if you hit the select button while watching the movie.
And 720p HD should look great already over DVD. Though, blu-ray quality varies from movie to movie. Sp even at 1080p if the film is not razor sharp like a 3D cg film it might look only a bit better than 720p. 720p already has 3 times the resolution as DVD, then it has no compression issues like DVDs do, so it looks even better because of a perfect pristine image every frame on top of being high resolution. Plus better color and handles dark scenes better.
Your tv is basically 720p or 768p even though it supports 720p/1080i. But if the PS3 had no fixed the 720p issue you'd still get the same quality if you had to choose 1080i, it would just downscaled it to the LCD native resolution of that 720p or 768p.
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