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1080p allows for more details, this becomes relevant with larger HDTV sets (note upscaling does not add details).





Relative pixel size difference with same resolution on a larger TV:



With regard to optimal viewing distance:



Screen and content resolution on HDTVs due to larger sizes are far more relevant than with regard to running PC games at high resolutions on small monitors (the average monitor in use I believe is ~17 inch).



Naughty Dog: "At Naughty Dog, we're pretty sure we should be able to see leaps between games on the PS3 that are even bigger than they were on the PS2."

PS3 vs 360 sales