This is a discussion ad nauseum in the HT world. I think the overall conclusion is that both sides have their points; 720P is practically (95%+) indistinguishable at certain distances, but like audio, that last 5% is quite sweet.
Doesn't processing also enter into the equasion? While there may be distance/screen combinations where a person would be hard pressed to tell a difference, I don't think it is desirable to take a 1080P from a BRD or a 1080i from cable tv and process it down to 720P. I think maybe I remember reading that 720 to 1080 processing is not very challenging and perhaps that is also true of the reverse, but when people say the difference is indistinguisable, that comes with an "all else being equal" caveat.
I would have preferred to wait on some "big" increase in performace to make the upgrade, something like LED lighting maybe, but since my relative was leaving Infocus (and access to discounted pricing) I pulled the plug 4-5 months ago on upgrading a 720P IN78 to a DarkChip 4-based 1080P IN83 and I don't find the difference to be slight at all. But there is more going on than just a simple resolution change so it is hard to draw firm conclusions, and I'm somewhere around 12-13' with a 100" screen.
When I bought a 42" LCD for the bedroom, I paid approx $100 more for a 1080P model just to have 1:1 pixel mapping with 1080 content. Being 12-14' back on a 42" screen there is probably little or no resolution advantage but I don't really trust $600 tvs to do good processing.