To be fair, however, in the first item you have to define whether you are talking about a 720p or 1080i TV, since they are not necessarily the same thing.
Manufacturers love to confuse the issue, since just about every 720p HDTV set will take a 1080i input (and hence frequently get mislabelled as "1080i HDTVs"). However, the
native resolution of a 720p set is still 1280 x 720 (same as the tv), so there's almost no point whatsoever in shoving a 1080i input into it, since the TV is just going to downscale the results to a 720p signal
anyway (some TVs will push that envelope by giving you 768 lines out of a 1080i signal, but the difference is still so slight as to be irrelevant).
On a 1280 x 720 TV, a Blu-Ray / HD-DVD is likely going to look very similar whether you're playing it from a DVD player or via the tv,
assuming that you can get software that will encode the tv version at a high enough resolution and bit-rate to be practical for these purposes (ie, a full 1280 x 720 frame). In fact, I would bet that you could probably make the output look almost indistinguishable from the source DVD if you tweaked the settings enough, since the tv is theoretically capable of spitting out whatever a 720p TV can take.
With a native 1080i/p TV, however, the resolution is actually 1920 x 1080. To some degree, the p/i question is irrelevant in this case (although a progressive picture will look better). The point is that the higher resolution is still available on the TV, and to the Blu-Ray/HD-DVD player (almost all of which output at least 1080i). In this case, the difference will be quite noticeable on a large enough screen.
Again, it's not so much of a difference that one should
care, as it's still light years beyond what any 480p DVD player or SDTV broadcast signal is going to give you, but if you have an actual 1080i/1080p TV, the resultant 720p source will look a little bit "fuzzier" than a true 1080i/1080p source. In fact, I observe this effect all the time with broadcast programs and stations that mix 720p and 1080i programming.
The short answer is that my own testing shows that an tv converted HD-DVD/Blu-Ray DVD
can look every bit as good as the original
on a 720p set if you take the time to tweak and push the settings. However, the default settings in the current crop of converters (Handbrake, VisualHub et al) will only produce similar "near-DVD" quality to what the "iPod" settings do for SD content -- quality that is most certainly more than adequate, but which still presents a noticeable difference under closer scrutinty.
Further, even on a sub-40" 1080p TV, the difference between 1080 and 720 is not going to be all that noticeable either. At 50" and up, however, the difference becomes quite apparent, even
from the same source (ie, by forcing the TV or DVD player into 720p mode, for instance).
Note that this completely leaves out the audio question as well, however... The tv currently only does two-channel stereo sound, so you can only get a Dolby Pro-Logic II signal out of it at best. Therefore, even a movie converted at the best possible tv settings will still be quite deficient in terms of the audio quality compared to the source. Again, it won't matter for everybody, and it certainly won't matter for every movie, but there are those movies I'm not even bothering to
consider converting to iTunes/Apple TV yet for that reason alone.