It's kinda debatable. Try a 32xAA 720p image vs 1080p no AA image and you'll see which one has more jaggies(hint: it's not the 720p one). About the blurrier image, it's all about native resolution. If your TV is 720p native, 720p will look cleaner than a 1080p image. If your TV is 1080p, then 1080p will look cleaner than 720p. Unless, of course, we're talking about CRT monitors, since resolution is not fixed on those, any resolution supported will look great.

Sure we would. But no need to keep everything at 480p, we could just start manufacturing CRT TVs again, this time making some HD panels though to support some higher resolutions, that would be much easier.

The GameCube and Xbox happened. 

So all this past gen we played blurry games? I didn´t notice to be honest.

"blurrier"

If something wasn´t blurry, how can it transform into something blurrier?  

Bill Gates is richer than Mark Zuckerberg, does that make Mark Zuckerberg poor?

So the resolution is not that important?

You're missing the point of that analogy.

point is, 1080p produces a clearer image than 720p, and produces smaller jaggies because the pixel density is greater.

http://www.lcd-tv-ratings.net/lcd/720p-vs-1080p look at the pics

That´s not entirely true. 1080P produces a clearer image and produces smaller jaggies than 720p ONLY in some circunstances. For example, I have a 42" LED TV and i sit far enough to play that i can´t see the difference. And that´s my whole point, this 1080p vs 720p thing is nonsense, because we are the ones who make it relevant.
Of course, if i sit at two feet from the TV i will find a diference: The image will be just fine.
The same happens if i play my DS games (on an emulator) on my PC hooked to my 42"TV: The image will be horrible. 
BUT those are not the normal circumstances. In reality, if i played a game on a TV at the right distance, the difference is non-existant