I have to option to run 1080i, or 720p on my HD LCD TV, 1080i looks like it's been run through a sharpen filter too many times, with odd "halo" effects around the writing.
720p looks much better, cleaner and still as hi-res and 1080i looks.
So 720p for me.
Your TV is a 720p TV. It's not a 1080i TV (virtually no LCDs are 1080i native) so the panel has to de-interlace the image to suit your resolution...and LCD TVs have awful de-interlacers. That is why you see the artifacts. Just stick to 720p and you'll be fine.