There was a change with the latest firmware release but it didn't address scaling games from 720p to 1080i. When both 720p and 1080i are enabled in the menu, PS3 will now choose 1080i over 720p. This means that the XMB will be output at 1080i and then converted to 720p by 720p native displays...
Looks like there will be a major firmware update in March with the European release...
http://www.reghardware.co.uk/2006/12...rmware_update/ There are also rumors of a firmware release in December but nothing has been confirmed.
PC Watch posted some good info on the PS3. The article is in Japanese so credit One at Beyond3D forums for the translation... http://www.beyond3d.com/forum/showthread.php?t=36188 Masakazu Honda currently runs a mini-series articles titled "Another Story of PS3" in his regular series...