I think much of it depends on what the native resolution of your TV is. "Many" 720p HDTVs actually have a resolution of 1366x768, which generally means that any 720p signal is going to get scaled slightly on your screen anyhow, though not as much as a 1080p image will be.
Even at that, not many 720p units have good 1080p downconversion either, and this can also in some cases introduce a bit more latency (which can be troublesome for gaming, especially if you play timing-critical games like rhythm games, i.e. Rock Band, Guitar Hero, etc.).
Try both and see how it looks - you should be able to notice a difference right away in the Cross Media Bar if nothing else. If you can't see a difference at all, then just go with 720p for the easier processing.
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