For the last 2+ years I gamed on my 360, it's been on an SDTV. It is only now that I made an acquisition of a 22" 1080p LCD (and at the sweet deal of $205 CDN :D ) that serves the dual function of my PC and console display.
Even so I never have and still don't advocate that HD resolution is a necessity of the current consoles. Number of pixels aside, on an SDTV you will still enjoy the benefit of higher polycount for more detailed character and environment models, better rendered textures, particle effects, more expansive environments, higher number of on screen characters. In fact what I would say has had the biggest impact on visuals, more than resolutions and textures, is the more advanced HDR Lighting, which really creates the realism in graphics and again is very evident on a regular TV screen.
Then with the issue of exact resolution settings, is 1080 the be all, end all of grahic quality? No. many games that are under 1080 (720 and in some cases 640), such as MGS4 and COD4 have proven that a game doesn't have to be rendered at 1080 to look stunning. Visuals are the sum of all the various factors (artistic rendering of textures, polycount, particle effects, lighting... along with resolution) that paints the picture you see before your eyes. But more importantly finding the best balance of all that which still allows the game to run smoothly, frame rate being just as important.
So with all that, HD does offer more fidelity and clarity to the picture quality of your games, everything looks cleaner and basically the visuals all just pop. Plus text and a lot of in game HUDs are just crystal. But even if not as crisp, like I said, all the afforementioned graphical aspects (2nd paragraph) are still there that makes games look better than those of the previous generation. Sure it's nice to have but by no means a necessity.
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