720p with high quality would give a sharper image than 540p with medium quality. The former is high def whereas the later is standard def and on top of that you would be exporting with lower quality settings. I would definitely stay with 720p with high quality export option. To cover the bases, are you sure that you are not exporting at Best Quality rather than High Quality, because Best Quality (pro res) has about a 4x file size versus other iMovie export options.
Is there some reason why you need a smaller file size? Is it a storage issue? What is the purpose of the video?
-- Rich