You should always watch things in their native resolutions (even on the 360 despite scaling being built in). For games, that's 720p, and for BD, that's 1080p. You might as well future-proof yourself and get all your bases covered with a 1080p TV.
MGS4 is absolutely playable even if you haven't played the rest in the series. One of my friends is in his 3rd or 4th time through (trying for no kills/no alerts), and he hasn't played the series since Metal Gear.
(notice I didn't say "solid" at the end)
Folklore is Japanese.
I just started up a game in 1080i, and it played just fine.
Make sure all of your other settings in the display menu are at the defaults--Off/Limited/Off.
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