Gears of war looked fantastic on my 480p set. The artificial super sampling effect did some nice FSAA. In fact the game looked some what worse to me when I played it on my 720p set.
I ended up playing Eternal Sonata on my 32" 480i tube because I was madly distracted by teh jaggies my 720p LCD.
I personally can't stand the look of 1280x720 expanded past 32 inches. And I won't be able to bare another generation of it.
To be fair, you can't stand the look of a horribly aliased 720p image past 32 inches. With high quality FSAA (MSAA + some form of transparency AA, and something to take care of nasty shader aliasing) 720p can look really good.
But I still think 1080p should be the target next gen. I see the reasoning behind the 720p + loads of AA argument but it's easier to enforce a resolution standard than to require a bunch of AA techniques that may not be compatible across the board.