Yes, you will need to change the unleashx display settings to "enable 720p" in the system settings. I would recommend changing the display settings on the MS dash to enable 720p as well. I've read some people have problems if the ms dash isn't set to 720 as well, I did it just to be safe. You can enable 480p if you want, but it should run 720p all the time once you get all the settings right. If all else fails it usually reverts back to 480i anyway.
The directions I gave earlier were to change the settings in XBMC, but I forgot the most important part. There are 3 different places you need to change in the settings on XBMC.
1. First go into the "system" sub-folder, then go to "video hardware" then enable 720p and change the video aspect to widescreen. This will make widescreen the default setting.
2. Then go into the "video" sub-folder, then go to "player" and change the resolutiong to 720p.
3. Go into the "appearance" sub-folder, then go to "screen" and change the resolution to 720p.
It's always a good idea to calibrate the screen (where you line up the right angle with the corner of the screen) because it can make it look weird if it's off too much.
When I say custom pixel ratio, I mean actually playing with the slider bars to save a custom ratio. While you're playing a video you hit start to bring up the little toolbar. Go down one and hit A, then your in the video settings. In the view modes you have 16:9, 14:9, and so on. Select the custom view mode, then start adjusting the size of the screen with the "zoom amount" and "pixel ratio" slider bars to get the picture right. Then go down and select "set as default for all movies" so it will save this ratio. This is mainly for videos that look really skinny on the 16:9 setting. In case you didn't know, the Y button cycles through the view mode while watching a movie, so there isn't really a need to go into the settings everytime.
And yes you can play dvds without the Xbox remote, the game controller works fine for menu selection.