Guys, this is all about display type. Which you should use is just dependent of your display. Fixed-pixel displays (LCoS, DLP, LCD, plasma) only display progressive scan. If you have a set with 720 vertical pixels, you can input 1080i all day, but only 720 vertical pixels will be displayed. Likewise, tube-based sets (CRTs, tube projectors) will only display 480i, 480p and 1080i. You can input 720p, but it's going to display 1080i, artificially creating the extra lines. It will not display 720p, no tube can.
In short:
Fixed pixel displays ONLY display their native resolution, regardless of the inputs they support.
Tube-based projection sets ONLY display 480i, 480p and 1080i, regardless of whether they support 720p or not.
If you have a CRT or tube RP, use 1080i. If you have a fixed-pixel display that's not 1080p, use 720p. If you have a 1080p fixed-pixel display, use 1080i (or 1080p, if available).
As far as which source is better, that's the only question of preference. 1080i will offer more detail and clarity, while 720p will have smoother motion.