I just got the 50" version of this model and games look AMAZING on it. I'm still in the break-in period, so I'm trying not to do too much gaming, but the colors in Gears of War 2 looked really good... much better than my 32" Toshiba Regza LCD, which is also 720p. I don't know how the 42" compares to my 50", but I'm sure they must be fairly similar in picture quality.
I use 1080i output for all my gaming on both of these. Some people say you can't really tell the difference, but I personally think that 1080i looks better. By the way, the 50" has pixel shifting, which is supposed to help with image retention / burn-in. I'm assuming this would have it to, so make sure to turn the feature on if you're worried. Also helps to keep your brightness and contrast down as low as it will go for the first 100-150 hours... just to be safe.
Also worth noting that the 50" version has popped up in a couple of recent deals, usually under $900 (it will be $899+tax at BB on Black Friday). Might be worth considering the larger version for the extra money, especially if it pops up again in the mid $800 range.