I have a projector that is 720p native, but like others mentioned, can handle 1080i. I asked a similar question a while back about which would be better, 720p or 1080i (that was back before I had the projector, so I couldn't test it). Anyway, from a standard DVD, I have let both the DVD player and the projector both "upconvert" from the 480i to 720p and 1080i. All in all, I find that the 1080i is no better looking than 720p. It was also explained to me that 1080i is sending the same amount of information as 720p, and from a standard 480i DVD source, I can say that this statement seems to be true in real life tests as well.
HD-DVD or Blu-Ray may be better at 1080i over 720p, but if the projector can only output 720p, I would think that this would be ideal to set up at.
SO I would stick with the native resolution. Even 720p is a lot better than 480i. Plus, most things that can send a 720p signal natively themselves (not a DVD player upconverting) is hi-def, so there is a lot less compression, less artifacts, and obviously higher detail, so there is even more than just more lines of resolution at play here.
Have fun!
