Two options:
1) You can hex edit the dash following FoeHammer's instructions using Xvi32 (freeware) to enable 480p on the stock MSFT dash and 480p DVD playback. No need to go into Live.
2) Get a newer Live game that will upgrade your dashboard for you (I think it's done, on disc as opposed to the internet but if you are connected to the net all the better - just make sure your mod chip is off). If you aren't already on Live I doubt it's a concern to you so don't worry about your eprom and HD # marriage. You'll still get the dash update. If I remember, after the dash updates you hold down both triggers and click both analog sticks (push down on them like zoom in Halo) to enable 480p. Unfortunately, you still have 480i only for DVD playback although you can always use DVD2x (hex edit for 480p) or Avalaunch or XBMC for DVD playback if that's important (personally I use a standalone).
EDIT: now that I reread your question - the Xbox supports HD (1080i/720p as well as 480p progressive scan) right out of the box with the component/HD cables. It's only the dash being in 480i that's the issue with getting the updated dash (nothing to do with the bios). As far as what will display, most games are 480p only, very very few are 720p and very few of those are games you'd really seek out to play. A few 1080i games exist but nothing worth buying. XMBC will upscale video to the resolution of your choice (if you are getting an LCD/plasma/DLP probably 720p but some newer 1080p models have been making appearances).
This post has been edited by ChrisF: Sep 14 2005, 08:29 PM