This is held has the pinnacle of graphics resolution for console systems though PC gamers have been gaming at this resolution and beyond for years already.
Microsoft's press release about the Xbox 360 and 1080p doesn't tell the whole story. To get the whole story you need to focuse a bit away from consoles and more at the connection technology, standards, specs and the various copy protection systems put in use.
A Microsoft Insider on the AVSForums (a techical resource that discusses in very geeky detail all this stuff) with the screen name 'Amir M' filled the techies in on exactly what's going on with the Xbox 360 and 1080p. Essentially CSS copy protection on DVD's and AACS copy protection on HD-DVD's won't allow for HD resolution display over unprotected analog component cables. Granted movie producers can opt to not enforce the copy protection standards if they don't want to and I've heard rumors that many won't until 2008. The theory being it'll help give consumers enough time to get new TV's to properly display HD content over the new digital (HDMI) ports.
Amir M says once the HD-DVD drive is out and the fall dashboard update has been released, regular DVD's will display at 480p over component cables (usually they display at 480i so that's a 2x resolution increase). Your HD-DVD's however will display at 1080i over component cables (not 1080p) due to AACS restrictions. To get the full 1080p resultion for HD-DVD's you will need to use the VGA cable for your Xbox 360 and either use a computer monitor or if your HDTV has a VGA port, you can use that. Some HDTV's come with VGA and/or DVI ports and maybe 1 or 2 HDMI ports. Older sets won't have HDMI at all.
Now you may be asking why will I be able to watch an HD-DVD at 1080p over VGA when VGA is an analog cable? The answer to that is simply that VGA is not bound by the same copy protection restrictions because it's a computer display cable, not a standard home video cable.
As for games, once the dashboard update is released, your Xbox 360 will upscale 720p games to 1080p. I personally don't know how good that's going to look compared to natively supported 1080i which we have now. It's a little bit like taking a digital photo that's 800x600 and digitally making it bigger in Photoshop to 1024x768. You loose some sharpness and clarity, so i'm really curious how well that's going to work.
However, games that were made to show in 1080p will show in 1080p native on your TV assuming your HDTV has 1080p support. Many cheaper 1080p sets do some trickery to display 1080p, they either upres or deinternalce, native 1080p sets are still very expensive and require an HDMI v1.3 port. I don't imagine we'll see many games support 1080p because of the DVD9 space limitations and the extra development time it'll require to make 1080p graphics as well as 720p for a very niche market. 1080p support would be a great thing to add to Collectors Edition / Special Edition versions of games though.
So to summarize this all up neatly:
- Component Cables: 1080p for gaming, 1080i for HD-DVD movies, 480p for DVD.
- VGA cable: 1080p for gaming, 1080p for HD-DVD movies, 480p for DVD
Source: avsforum.com