Sorry if I'm asking dumb questions but I need to know the answer. Ok, I bought a new tv which has a resolution of 1440 x 900 (the box is upstairs so i do not know for sure) and set the 360 to 1080p. At first I thought the screen would go black or something however the tv functioned perfectly. Does this mean my tv can function at 1080p or not? If not, what is the tv currently outputting?
Some TV's, such as my own, accept a 1080p signal - though it's not "true" 1080p. What's happening is the Xbox is outputting 1080p, and your TV is then downscaling it to the proper size.
If it looks fine, then leave it. You should also try other settings and compare quality, such as 720p upscaled.
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