Upscaling a dvd(480p) to any HD format(720p or 1080i) will likely look the same across the board. You should notice a bit of difference between normal 480p and HD, but not that much. You have to check into the fact that depending on your LCD and how you have it setup, it just might be upscaling whatever it receives to 1080p for you.
I haven't noticed any big differences between 720p and 1080i upscaling with a 480p dvd signal. At least not with the xbox. I honestly prefer 480p via my sony dvd player to my 42" lcd. The dvd player gives a much less grainy picture than xbmc for some reason. Haven't delved into any heavy tweaking with that though...
Now when playing xvid's that are HDTV and upscaling to 720p, it looks awesome. Seems like the upscaler is much more robust when it comes to that.
BTW: Don't spend tons on cables trying to correct your picture issues...they are usually a waste of money. Walmart has philips component and hdmi cables for pretty cheap compared to bestbuy and circuit city.