I have a 48" with 1080i component and DVI inputs. I connect via the component. when I watch a regular dvd through my 360 HD drive and hit the "info" button on my tv remote it says "480p." So from my experience I would say it makes nopt difference with regular DVDs. I have not tried it with vga, mainly because of cost, at least $50 for both the 360 vga cable and vga-dvi adapter.
I would also say that I'm not blown away by HD DVD. A regualr DVD that utilizes a high bit rate and good color, look pretty damn good on my tv.
I have not done a side by side comparison of the same movie with dvd and hd to give myself a more accurate example of the difference.
I would say with a tv 48" or smaller HD DVD is worth waiting on. But I would assume that the larger your tv, the more you would notice the difference.