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Groucho said:

On top of that, I noticed that the NXE is upscaling a 720p image to my 1080p screen.  The jaggies on my avatar are pretty evident, and unchanging from 720p to 1080p (there's a very small amount of "blur" to the jaggies with 1080p, due to the upscaling, but they are clearly still present).  I actually prefer the 720p version -- at least its crisp.  I'm a little confused as to why MS didn't make the NXE run natively in 1080p.  I guess the premium themes are all 720p, and they didn't want to upset the folks who make themes?  NO idea.  I'm sure my 360 has always upscaled the interface... I just didn't notice until I had a (spiffy, actually, I like them) avatar to look at onscreen.  

I guess not noticing is the reason they don't provide a 1080p native version... although the clarity of background images, etc. clearly suffers next to my 1080p native PS3.  Not a big deal... just a "why not make it better?"

 

Unless you set your xbox to output 720P, the dashboard is not rendered in 720p - it is rendered directly in 1080p.  The guide (popup that works in game as well as in dash, including notifications) is the only thing rendered in 720p and upscaled and that's always been the case (some kind of limitation they could not overcome).  This particularly impacts the text in popup notifications (always looks blurry to me) but will not affect avatars in the dash (games may render to whatever they want, and most do render to 720p and get scaled on the way out - so an avatar in-game might be getting upscaled).