I have a 32" Sony Bravia KDL-32L5000 and an Asus V222H Monitor and I have them duplicated at 1920x1080. The Asus monitor displays the full 1080p, while the Sony 32" simply down-converts the signal to 720p. I can watch full 1080p HD movies no problem or play games perfectly fine. The Sony says it is receiving a 1080p signal too when you check the input status.
720p is perfectly fine for a 32" or under. In my opinion, you don't notice the added resolution until you get to 40" or above, but it all depends on how far you are from your TV. 720p might still look okay on a large TV if you're far enough back.
thanks i may go with the 720p if i can save some dough cuz i plan to get a "real" tv for my room once i have the cash. actually i have a 50" 720p plasma in the living room but id rather game in privacy and with headphones so i don't bother anyone, and i'd rather not have to resort to fm wireless headphones.
btw anyone with experience with those? I can get a most likely crap quality pair for $12 new.