Seeing as it's a 720p native set to set the resolution to 1080i would be oversampling
Oversampling is when an image is rendered in higher detail and then shrunken to the smaller screen. The end result is that for each pixel on screen, there is more than one pixel of information to draw from, so the system is able to average the information out and create a much more accurate image. This is very similar to the effect known as anti-aliasing, which does basically the same thing but only for polygon edges. Anti-aliasing is a much more efficient approach since oversampling polygon faces is generally not very beneficial.
In the end, as long as your TV can process the information well(which looking at the TV etc it probably/most likely can) the end result should be just fine. For movies they won't take advantage of the 720p's higher frame rate much if at all so a more detailed image to work with may prove advantageous to your overall viewing experience.
I tried to explain it as easily as possible, I can provide images based on a game if you like to try and visually explain it.
