That TV doesn't do 720p native. Just like we've talked about in many other threads, there are no CRT sets out there that will do a 720p signal. Even real high-end Sony sets won't do a 720p signal native. They will ACCEPT it as an input signal, but the set is just going to convert it to 1080i to display it.
With instances like this, it just depends on which device has the better scaler. I'm sure both the 360 and this TV have decent scalers. So, if you leave the 360 in 720p, the TV will do the scaling to 1080i. Or, you can have the 360 do the scaling from normal 720p processing to 1080i output and just have the set display. The ATi Xilleon display encoder in the 360 is very good, so I would think it would be better. But, just try it both ways, and see which you like better.
Hilg