The exact same thing happens to me when setting the resolution to 1080i on my tv that does 1080i, 720p, 480i/p. If i set the tv to 1080i it downscales everything to 480p. Also in 720p i get some screen flicker through HDMI no less.
They had better get busy writing some code to fix this dammit.
And I popped in a standard dvd and was dismayed when I found the PS3 does not upconvert standard dvds thrue HDMI to higher resolutions. That is so booty, i was hoping i could replace my dvd player all together but now i need to get a HDMI splitter.
I am looking forward to some good games in the future but I have been let down byt the PS3 so far.
I get flicker through HDMI as well.
So I'm using component. It's really
worth me having a Bluray in my PS3 and paying the extra cash for the privilege.