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1080i is better than 720p simply because 1080i is a higher resolution. Yes 1080i is interlaced, but you don't see any "artifacts" or "distortion" because of it assuming you have a half decent HDTV. With the 360 however, almost all games are 720p so any difference seen between selecting 1080i and 720p is from the 360s and/or HDTVs scalers/video processor/deinterlacer
HD officially starts at 1280x720. Anything higher is HD, but may not be a common home theater resolution(which doesn't really matter as long as you're getting a good picture).
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Optoma HD70, 42" Panasonic TH-42PX75U, Denon AVR-3805, KEF KHT2005.2, Monster PowerCenter HTS-3500MKII
BeyerDynamic DT990, E-MU 0404 USB, RockHopper Mini^3, Grado SR-80, Cowon iAudio X5, Acer Ferrari 4006WLMi
"Silence, the only promise ever kept." - Lamb of God
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