Everyone, it's very simple:
- The cost to use 1080p chip set cannot be much more than the cost to use a 720p chip. We can easily see this by looking around at lots of other video player boxes that have 1080p chip sets inside, and cost less than $100-$150.
- A 1080p
TV platform can completely satisfy everyone who believes 720p is "good enough", "you can't see the difference", "the chart, the chart", etc. It would play your 720p content to the fullest level it can be delivered.
- A 720p
TV platform can NOT completely satisfy all those BUYERS who want 1080p playback capabilities. So even as we see over and over in this thread, a lot of Apple fans say they will NOT buy it if it doesn’t come with 1080p capability
- If Apple wants to sell as many units of hardware as possible, the correct choice is to roll it out with 1080p chip set
It makes NO sense to wait for 1080p content to appear in the iTunes store first, as it is impossible to play 1080p content on a 720p

TV, if the content producers added a bunch of 1080p content today. The hardware must lead, so that some content owner gets enticed into testing whether 1080p versions of their films or shows will be profitable via this new(er)

TV platform.
It makes NO sense to blame the lack of bandwidth, or to argue for waiting for bandwidth to catch up to this need. Until the need puts great pressure on the pipes, those who control them feel little reason to do much about expanding bandwidth. Furthermore, the U.S. is not the only market in the world, and there are plenty of countries with much faster average bandwidth.
Contrary to semi-popular belief there are more sources of potential content for a next-gen (1080p)

TV than just the iTunes store. For example, I've owned a HD camcorder for more than 3 years now- just no way to pump those 1080HD movies to the TV via

TV. On demand "home movies" is one of the best features of the

TV "as is", but it's a shame that so many consumers have 1080i and 1080p camcorders with no way to get that content to their 1080i or 1080p HDTVs via a device best suited to make that so easy to do. Apple provides iMovie for free for editing that content. It can export it at 1080p too. Quicktime can play it that way. It will even go right into iTunes just like any other video. But the weak link in the chain is the last one, which moves your movie from your iTunes library to your HDTV screen.
It doesn't add much- if any- cost to make the next-gen a 1080p platform. Those who believe it is overkill can still enjoy their 720p content to the fullest. But those who want more than 720p will have a compelling reason to buy one too.
This is not a "because Apple says 720p is good enough, we have to agree with the Steve" scenario. Instead, it is an opportunity for Apple to make both sides happy without making either side sacrifice their individual opinions about 720p vs. 1080p.
Personally, I'd much rather have Apple deliver the OPTION for 1080p, rather than decide for me that 720p should be good enough. And until the 1080p version is significantly entrenching in homes, there is virtually no motivation for content producers to add 1080p

TV content to iTunes to test interest, nor much reason for larger investment in the pipes to accelerate the delivery of such content to us. If we wait for 1080p content in iTunes AND national broadband speeds to be fast enough, we'll all be a LOT OLDER than we are now before we get there.
Apple must lead... and with this particular thing, there is virtually NO reason not to use a 1080p chipset if Apple's goal is to sell as many pieces of hardware as possible. This idea of "sell us a 720p version first, then sell us again next year when they add the 1080p version" is small potatoes thinking. The little market segment that embraces anything Apple- including gimped versions- is not big enough to make this go. They need to build something that buyers beyond the most Apple faithful can get excited about.
Even Joe Sixpack can grasp that little boxes he connects to his 1080p "full HD" TV have to be 1080p-capable devices. He doesn't want to buy a 720p limited device to hook to his 1080p HDTV.
And neither do I.