This is the common 'chicken and egg' argument for new technology though. At the moment there's hardly any HD sets out there. In which case, it doesn't make sense to target the tech. Why create HD games, HD TV programmes, and HD movies, when 90+% of the world's population won't benefit? The reason is to push technology forward (and create a new standard, and sell new technology!). Without the content, the technology won't sell. So the content has to come. Seems to me the industry as a whole is taking a move towards 1080p as the ideal HD solution, good for another 15+ years, and they're creating content towards that. With Sony being a CE company, it's more of interest to them than MS, so for MS they could target the more-popular-but-still-vanishingly-small-proprtional-to-SD-set-users-720p-market.Is it worth the premium or sacrificing of other effects to get a game to render at the higher res? Nope, not at all. Both the Xbox and PS3 dont have all this GPU power to spare in my opinion to just do it in every game or even alot of games. Will games have it? Sure, its called marketing, and it works very well as you've proven to us all here.
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None makes sense from a performance for the install base, but they want to look forward thinking. If no-one were to target the rare cutting-edge, we'd never get any technological progress. No-one would be producing HDTVs as no-one would produce content for them, and no-one would produce content for them because no-one would produce HDTVs.