I just bought a Xbox 360, (I got an amazing deal, for 354 plus shipping got a premium with oblivion, ghost recon advance war fighter hd video adapter, two controllers, and battery) and found out that when you connect it to a monitor it can only output at a maximum of 1280x1024, not the true 1080i spec of 1920 × 1080 when connected to my computer monitor. This leads me to beleive that when the xbox 360 is connected to a HD television that it is upconverting from 540p to 1080i, and that is why I believe the xbox 360 cannot play movies in 720p progressive scan.
Now people know why I dont want to buy a HD TV, HD is a broken wasteland of lies that sucks the money out of the consumer faster than the desert sun at high noon.