Blu-Ray movies output in 480p if your TV doesn't support 1080i OR p, most people should have a tv capable of atleast 1080i if you want to really experience the system as it's supposed to be experienced.
PS2 games look normal on the PS3 IMO, not much difference at all here.
720P is really the "must have" TV resolution for a PS3 setup as all PS3 games support it and most only go that far so really it's not sony's problem if you don't have a TV that's not capable of that resolution.
If your TV supports 1080i then games that support 1080i should run at 1080i instead of reverting back to 480p.
When the PS3 is launched in Europe/Australia sony will have a new firmware out that will fix some problems such as being able to download in the background and pause downloads so hopefully it might fix these resolution problems but as far as I know it's not capable of doing so.
20GB JPN PS3
PS Network name : Lanbo
110v-240v psu's, thank you sony, thank you!