Everything outputs at 1080P (or whatever mode you set) on Xbox because it has a hardware scaler. I didn't realize how big a difference it made until I got ahold of a PS3 and witnessed it - the PS3 actually changes the display mode when you enter most games down to 720P. Unless your TV has a fantastic scaler built into it, this absolutely kills the graphics. I have a circa 2003 1080i HDTV and it doesn't do a fantastic job scaling 720P (and it can't directly draw 720P, it has to scale it) - so I suppose the experience may vary, but for me this means I will never actually own a PS3 - it looks terrible next to the Xbox for the exact same games (I rented a few when I borrowed the PS3 so I could compare.)
To be fair, most games on both platforms actually render to a 720P or slightly lower frame buffer - but the lack of a scaler on a PS3 means that the output image on a 1080i or 1080p display really, really suffers. If I had a 720p display I suppose the PS3 would look more like the Xbox.
