According to the TCR's devs only need to target 720p. The outboard display chip is responsible for scaling the image. It can scale up to 1080i or down to 480i/p. MS made this decision in order to support ALL HDTV's without requiring specific developer support for each display mode, as was the case with XBox 1. Many older HD displays are limited to supporting only 1080i or only 720p.
Because it does its scaling in the analog domain, this display chip is incapable of digital outputs like DVI/HDMI or supporting 1080p. It was designed by MS's WebTV group. Right now it is limited to composite, s-video, component, and vga. The chip can be re-engineered and changed later since it is seperate from Xenos to support digital out, but that could create consumer confusion as to which XBox units do what.