I've owned a 32" 720p LCD HD TV, and a 32" 1080p LCD HD TV. I keep hearing that the upgrade to 1080p is worth it, depending on how far away from the TV you are going to sit. From what I hear, you should be able to notice a difference between a 720p and 1080p 32" if you're not sitting more than 5 feet away from the TV screen.
To be completely honest with you, I HONESTLY didn't notice any leap in picture quality between my 32" 720p and my 32" 1080p. The 360 games really made my jaw drop when I first saw them in 720p, and it really doesn't get much better than that.
I also honestly think that you should invest in one of the Xbox 360 HD DVD add on players if you are not going to invest in cable or Blu Ray movies. The 360 add on can probably be had for $30-$50 and you can find most used HD DVD movies for $5-$8 from Amazon sellers and the forums on hidefdigest.com. I know it sounds stupid to recommend a dead format, but I still think HD DVD has better looking catalogue titles than Blu Ray has...and HD DVD is still the better format IMHO. So, you really couldn't go wrong with picking up an HD DVD add on as a holdover until Blu Ray prices come down a bit.
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