ALl of these responses are spot on - in most cases, you want to match the output of the player to the native resolution of the television.
There are some exceptions, though. If I remember correctly, the first generation HD-DVD players didn't output in 720p very well, and the 1080i output looked better even on 720p displays. Also, I believe the PS3 (before its latest firmware update) could not scale 1080i material to 720p, so if you forced it to output 720p it would fall back to 480p. I'm not positive about that, but I think that's what I remember.
Anyway, the bottom line is to test it out for yourself. You should expect it to look better by feeding 720p to the tv, but it may not, and if it doesn't, do a little research to find out if it's a special case.