To be fair, MS is still saying that 720p is the sweet spot, and that 1080p will mostly be upscaling from that. I don't think they've changed their tune in that regard, except to say that a few titles here and there may natively render 1080p. Also, recall that Sony was hyping the whole "dual 1080p displays" thing at the time, which was insanity and deserved to be ridiculed.
Also, as I've pointed out before, 1920*1080*32bpp (w/out AA, obviously) does fit in the 10 MB of EDRAM, although 32 bpp including your z-buffer, stencil, and what have you is very small. I could see some XBLA games using that. I still think 720p will be the sweet spot, for sure.