The "i" in 1080i or 720i is for interlaced. The "p" in 1080p or 720p is for progressive. In interlaced mode, lines are used to display the image onto your screen in different halves of the screen, upper or lower first. These lines move so fast its hard to see but sometimes can appear and affect the quality of your image. In progressive, the lines are displayed all at the same time as the frame, thus, reducing that "liney" image.
1080 is just more image than 720, no other way to put it. But because of the display type, you may see some image issues (like the lines in interlaced). Its all a personal preference. Your TV should auto switch to the highest quality image. If a 720p game or movie, it should be at 720p and no higher. But on a 1080p game or movie, it should be at 1080i if thats the highet your TV allows. If you didn't want 1080i in that case, you could set your PS3 to only go as high as 720p.
I know I just took the long way to say, its all your opinion and choice.
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