(PS unless you're Cable company or broadcast is in 1080P set your Cable box to 720p over 1080i for a better picture Progressive ALWAYS better than Interlaced but thats a whole other discussion!)
I've got a Panasonic PT-AX100U projector, which is widely regarded as one of the best 720P LCD home projectors out there for under $2500. My cable company's box can output either 720P or 1080i (there is no 1080P over cable). The thing is, even though 720P is the native resolution of the Panasonic projector, the scaler built into the Panasonic is much BETTER quality than the cable box. Thus, a 1080i cable signal looks better output through 1080i on the box and letting the Panasonic scale it down to 720P than letting the cable box scale down 1080i content to 720P, if you follow what I'm saying. In other words, if you're using a 720P projector or TV set, you can't just assume that you'll get a better picture with your cable box or satellite receiver set to 720P because either way, the picture HAS to be scaled and the better your tv set or projector, the more likely it's going to do a better job than the cable box or even the Blu-ray player.
In my case, I compared 1080i channels like HDNet with both the 1080i and 720P output and it always looked better output as 1080i. There are VERY few 720P stations out there and it does look a little bit better using 720P output with 720P than letting the cable box scale up to 1080i and then the projector back down to 720P, but given there are more 1080i channels by far than 720P and they (for whatever reason) look much worse when the cable box down-scales than when my Panasonic does so, the clear choice was to still output 1080i.
Just the opposite is true with AppleTV. It's basically natively 720P output all around (save the non-HD stuff, which is easier to upscale than downscale well) and the picture always looks best set to 720P with my 720P projector. Now whether it looks better at 720P or 1080i or 1080P output scaled will depend on whether your 1080P set has a better upscaler than the AppleTV or not. This whole process pretty much applies to all devices. There are high-end scalar devices that will act as a switch and give you the best possible scaled images either direction, but they cost some real money.
The PS3 plays Blu-ray movies but quite honestly for 95% of us buying a 720p movie or buying a Blu-Ray DVD we will most likely notice very little difference if any.. though the cost savings would be significant.
That will depend on whether you can rent them locally (assuming no scratch problems, etc.) or whether you want to own all your movies (whether you watch them more than once). You can't currently 'buy' 720P movies from Apple. I'm not sure I'd want to either. I'd probably rather buy a Blu-Ray disc unless I could burn a hard copy of Apple's 720P myself at some point and whether I could transfer it to other mediums (not worth much if I can only watch it on that one single AppleTV. At least you can take a Blu-Ray disc with you and watch it on anyone's player or a 2nd set upstairs or whatever. You can't even transfer an HD rental on AppleTV to another AppleTV unit in the house (e.g. I have two; one upstairs and one downstairs). That's definitely a negative for AppleTV.
Most of the non-HD stuff I've seen on AppleTV looks pretty soft. I think my cable 480i stations look better than some of those pictures I've seen on my 93" set! That might be due to a poor scalar in the AppleTV, though. I should really try switchin to 480i or 480p output and send that to my projector and see if tv shows or videos look any better.
I started to try out Handbrake (I thought I'd just rip my music video and concert DVDs since I'm more likely to only play short parts than with a movie where it's not worth the bother). It requires Leopard (I hate how already people are ditching all support for Tiger when Tiger is still so much more reliable and in my case, much faster than Leopard) so I had to reboot into Leopard to try it out. I also downloaded a version for my XP machine since it has a considerably faster dual-core processor in it (the PowerMac here has a single 7448 1.8GHz G4).
Well, I started ripping a music video DVD on the Mac at 70% quality and progressive output and two sound tracks (one stereo, one AC3 dolby surround). It said it would like 8-10 hours to complete!!! That's ridiculous. So I plugged the same DVD into the XP machine and of course, the XP version of Handbrake can't rip copy-protected content for some unknown reason (Linux and Mac versions can), so I guess you have to use another program to do that first in each case, making the whole process even more a pain in the butt. So I never did get a comparable time quote since I just said the hell on it. I might set it to encode on the Mac at night when I'm sleeping or something to try it out....
TV. I'm making the plunge tomorrow. Thanks to those who helped sway my decision! 
