I just bought an ATV2 two days ago. I had this same problem...ATV2 would default to 480p no matter what I did. The customer support line is useless.
I am running all of my hardware (Tivo, SACD/DVDAudio, PS3, etc) through Denon preamp that scales all input formats to 1080i/29.97 for my CRT front projection system—the "TV", for simplicity—with a DVI input (HDMI > HDCP compliant DVI plug). I found a 100% reliable solution to this, because it's an HDMI-handshake problem where the Denon unit does not get a list of supported modes from the TV. I assume all scaling receivers would behave similarly, as there's not much difference between them.
I turn on the Denon unit (which also powers on the ATV2 since it's plugged into it for power) and turn on the TV. The ATV2 will start up and load in 480p. I turn off the TV, the Denon unit is no longer reporting a blank list of supported input modes, and the ATV2 switches to 720p mode. When I turn the TV back on, no new set of input modes is reported and it stays in 720p mode every time.
It does not work for me to simply boot the Denon unit first with the ATV2, then power on the TV. It gives me a 1280x720 layout chopped off to 480p, so I can only see a small portion of the ATV2's menu (for reasons I don't really understand).
Power on the receiver/preamp and ATV2
Power on the TV/display
Allow the ATV2 to boot to its menu
Power off the TV/display
Power on the TV/display
720p works
