Sorry to be such a noob, but how much better is HDMI over VGA?
There's no way to offer any precise figure here - it all depends, as the popular saying goes. Analog VGA can span anything from crispy sharpness to muddy dishwater in picture quality, depending on the quality of the RAMDAC, the passive components on the graphics card, connectors and cable quality, and the internals of your display device. Too many variables to offer any general figures.
Generally speaking, the higher your resolution and refresh rate, the more difficult it is to provide a good picture with analog signalling, particulary over a longer cable. Noise from outside, cable impedance and resistance etc starts to become a big issue.
The 360 doesn't run at a particulary high resolution, and the refresh rate is very limited. A decent VGA cable is therefore enough to provide a good picture. Should you need a longer connection however and start to use extenders etc, well, then all bets might be off.
Even today where are handshake issues, HDMI errors, compatiability issues and so on.
It's not the fault of the interconnect that it is being implemented badly by consumer goods manufacturers. When was the last time you heard of a VGA card not working correctly with a PC monitor?
HDMI is not a guarantee in better picture, for now. For example, my Comcast DVR box does a better job with HD feed and esp. SD feed using component than HDMI
You can't use your junky cable box or whatever as some kind of a measuring stock for HDMI picture quality. Who knows what that thing does internally to the image, there could be an internal DAC-ADC between the framebuffer and the TDMI transmitter for all we know.
DVI/HDMI allows the framebuffer to be sent straight, in a purely uncompromised, unaffected digital format for the best possible image quality on both digital and analog displays. If the hardware in question doesn't do this, then it's not the fault of the interconnect!