I've been watching 720P LCD's at my Mother's house and a 720P projector at my place for the last several years. Earlier this year I picked up a 1080P LCD. It really does have to do with the distance you sit from your set. My Mom has a 32" Sony 720P set. It was pretty much top of the line 2 or 3 years ago. She sits about 13 feet away from it and says she can't tell the difference between SD and HD. Well at 13 feet I have trouble too some times. At my place I sit about 9 feet away from a 46" 1080P Mitsubishi set, and it looks phenomenal. It definitely blows away any 720P set I've watched, including my brother's 720P plasma. That said, I have an open floor plan with my kitchen, dining room, and living room all sharing the same space. It's about 30'X20'. When I'm not sitting in the living room, my eyes aren't good enough to see how good the 1080P screen is.
Crutchfield has a great chart in their catalogs and probably their web site too with recommended screen sizes for seating distances. If the set you're looking to buy isn't as large as they state for your seating distance then you probably aren't going to gain anything with 1080P. If you can afford the larger set however, 1080P is the way to go. Incidentally, the sets on display at the big box stores are rarely set up properly. They're usually splitting the same signal 20 or 30 times, usually a pizza dish signal at that, making the picture look like crap on every set in the store. The only exception is when they have a BD or HDDVD deck connected directly to a set.