The folks at AVS Forums are also up in arms about this, I see news spreading all over gaming and tech sites about this.
The Truly

ED UP..and I mean

ED UP Thing about this...is that Sony didn't even bother to ANNOUNCE IT. There are going to be thousands of people who wont flip theirs on ebay, suddenly finding their CRT Tube or RP or FP setups rendering all games in 480p....
There are Tens of Thousands of people who still, to this day, live quite happily with 50, 55, 60, 65, 72 and 73" CRT based RPTV's.
To all you HT Noobs who think HD magically appeared in 2004, they've been selling HD sets since 1998...and up through 2003 CRT RPTVs were still outselling the overpriced and underfeatured Plasmas and LCD sets.
Few CRT based RPTV's had scalers built in prior to 2002....I own a 65" Mits that I use for gaming and thats definately not gonna work.
If you own a CRT Tube, Rear Projector, or god forbid a Front Projector....this effectively means you're screwed. Oh yeah..software? This is a hardware solution, not a software patch.
This is the same problem that everyone had with the XBOX and 720p titles.
The original xbox didn't have a scaler, so everyone with a CRT SET in 2001 and 2002 that did 1080i was stuck playing in 480p. Microsoft solved this problem by including a fantastic scaler in the 360.
So SONY concedes that it can't implement its ICT flags to downrez Blue Ray movies over Component because Sony knows there are probably as many older CRT based sets out there without digital inputs as there are modern LCD and Plasma sets.
And yet at the exact same time they didn't bother to include a scaler inside the PS3 so that those same systems that were going to be running on Component Cables could actually play the GAMES in High Def? Oh My Shaq-Fuuuuing God.
So you can watch Blu Ray movies in HD, but you can't game at 1080i.....
I own a couple of 720p displays, but none of them were the intended target of the PS3 I'd eventually buy. I'm definately sitting on the sidelines until this thing shakes out.
No launch lineup of games, bluetooth control with no legacy IR port makes every Universal Remote made so far obsolete, no strong selection of Blu Ray movies yet, a lousy transfer of Talladega Nights included as the pack in, and now THIS little gem.
***EDIT***
The big thing right now seems to be trying to figure out if this is a feature of the PS3 that isn't currently implemented in the launch titles, or if its an actual hardware deficiency with the design of the unit. There are lots of interesting ideas flying around, but suffice to say at least for now.....a game like Resistance, NFS Carbon, and so on....simply wont run at anything other than 480p on a 1080i set unless that set has its own internal scaler to turn 720p into 1080i. The plot thicks.